Reeves mulls £100,000 cap for tax-free pension lump sum
Rachel Reeves is reportedly considering reducing the tax-free lump sum that savers can take from their pensions ahead of the Budget on 30 October.
The Chancellor is mulling plans to cap the withdrawals at £100,000 in a bid to shore up the public finances, according to The Telegraph.
It was reported that government officials have asked one of the UK’s biggest pension providers to review the impact of such a move, which would bring the limit down to almost a third of its current level.
Under the existing regime, most savers can take 25 per cent of their pension pot tax-free once they reach the age of 55, up to a limit of £268,275.
The Institute for Fiscal Studies (IFS) has estimated that lowering the limit to £100,000 could affect one in five retirees.
The government is reportedly looking at recommendations by two major think tanks to reduce the cap in an effort to raise around £2bn in revenue at the Budget.
Influential think tanks the IFS and Fabian Society have made the case for bringing the lump sum down to £100,000, arguing that the current cap favours the wealthy.
It was reported last week that No11 was mulling what could amount to a £24bn pension tax bonanza as the Chancellor tries to fill what she claims is a £22bn “black hole” in the public finances left behind by the Conservatives.
However, this could hit Labour’s public image after already restricting the winter fuel allowance to the most vulnerable pensioners, which triggered a backlash from the party’s backbenchers.
The Chancellor is reportedly set to drop plans to reduce the 40 per cent tax relief on higher earners amid warnings that it could disproportionately impact teachers and nurses.
The Treasury is also said to be considering whether to abandon its promise to scrap the non-domicile (non-dom) regime – a tax status that allows wealthy foreign nationals only to pay tax on income and asset gains earned in the UK – as officials are concerned it might not raise any money
The Labour government is also said to be considering changes to capital gains tax and inheritance tax to raise revenue.
A government spokesman commented: “We do not comment on speculation around tax changes outside of fiscal events.”