People with this amount in pension could face £45,000 tax bill in October

Labour could end the tax-free lump sum in the forthcoming Autumn Budget, it has been claimed, amid reports of a £22 billion black hole left by the Conservative Party which needs filling. Ahead of October 30, Labour has been told it must slash the tax-free lump sum savers can withdraw.

The Fabian Society, a leading left-wing think tank, suggested cutting the amount of money anyone aged 55 and over can take out of their retirement pots without paying tax from £268,275 to £100,000 – or 25 per cent of the total pot, whichever is lower.

Savers with a defined contribution pension can access 25 per cent of their pension pot as a tax-free lump sum, up to a maximum of £268,275, which can be taken in one go or across several withdrawals. Reducing the allowance to £100,000 would mean someone with a £1m pension who chooses to withdraw 25 per cent as a lump sum would have to pay an extra £45,000 in income tax, assuming they have no other income.

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The environment secretary, Steve Reed, told the BBC previously: “We’ve got into our offices now and we’ve seen what’s really been going on, and it’s catastrophic. It’s worse [than expected]. There were things that we could not have known during the election, because the Conservatives had not only not released the information, but in some cases, they deliberately covered it up.”

He questioned whether Tory MPs were “involved in this cover-up” or whether they did not know, and as a result “should be grateful that Rachel Reeves is now exposing the true extent of this catastrophic inheritance from the previous Conservative government”.

The shadow paymaster general defended the Conservatives’ handling of public services while in government and accused Labour of “breaking all their promises” from their general election campaign.