Chancellor to consider slashing 25 per cent tax-free pension withdrawals

9 October 2024, 07:30 | Updated: 9 October 2024, 07:32

Rachel Reeves is said to be considering a cut to the tax-free lump sum savers can take from their pensions.

The new tax raid allegedly being drawn up by the government could see the tax-free lump-sum limit reduced by two thirds to £100,000.

The plans come off the back of new think tank recommendations ahead of the impending Budget on October 30, according to the Telegraph.

Currently, those with savings can take 25 per cent of their pension pot tax-free at the age of 55.

The rule applies to those with savings up to a maximum of £268,275.

According to the Telegraph, government officials have asked one of Britain’s top pension providers to explore the impact of cutting the tax-free lump sum.

The plans could see the tax-free allowance cut to a third of the current limit.

It comes as it emerged Labour is set to ditch another controversial pension tax raid, following warnings it would hammer up to a million teachers, nurses, and public sector workers.

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A source told the Telegraph that the new rumoured plans followed recommendations drawn up by two major think tanks in a bid to raise an estimated £2 billion in revenue at the next Budget.

Figures drawn up by the Institute for Fiscal Studies (IFS) and the Fabian Society are said to have argued that the lump sum should be cut from £268,275 to £100,000 because the current cap favours the wealthy, according to the source.

Chancellor Rachel Reeves had planned to raise funds by reducing tax relief on those earning £50,000 or more per year.

But Senior Treasury officials have warned that the measure would disproportionately affect those on modest incomes employed by the state.