As Rachel Reeves reportedly considers another tax increase, pensioners may be hit with yet more blows from the Labour Party in the October budget.
In her upcoming fiscal statements, the Chancellor may reduce the tax-free lump sum by up to two-thirds for those who have saved. Currently, those who reach the age of 55 are permitted to take tax-free up to 25% of their pension pot, up to a maximum of £268,275.
However, it has been reported that Ms. Reeves’ staff is looking into the possibility of reducing this to just £100,000 as of this evening.
Left-wing think tanks are pushing for such a move, which could give Ms. Reeves up to £2 billion more money to spend on Labour policies.
The Telegraph made the revelation after officials asked a prominent pension provider to evaluate the policy’s impact.
The Fabian Society and the Institute for Fiscal Studies have argued that the current cap favors the wealthy, with the former estimating that it could harm approximately one in five retirees.
Steven Cameron of the pension company Aegon blasted: “Ms. Reeves has been warned of a “major outcry” from pensioners this evening.” Many people will have planned their retirement finances on the assumption that they could take a tax-free lump sum of 25% of their total fund.”
In the meantime, Mike Ambery from Standard Life cautioned that the policy would be “operationally complicated.”
He elaborated: This is due to the fact that pension funds are typically managed under trust, and it is also impossible to modify benefits that individuals have already accrued. There may be a legal challenge to it.”
A government spokesperson stated: Outside of fiscal events, we do not comment on tax change speculation.
When it was revealed earlier this week that Ms. Reeves had abandoned plans for a different raid on savings, many pensioners will have let out a small sigh of relief.
The Chancellor had planned to cut the tax break for people making just £50,000 a year in order to raise money.
However, senior Treasury officials informed her that those in good jobs who had devoted their lives to the public sector would be harmed if the current level of tax relief, which is 40%, was reduced.
For instance, a nurse with a yearly salary of £50,000 would be subject to an additional tax bill of up to £1,000.
A senior government source told the Times that such a move would be “madness” given that the Treasury has worked hard to give public sector workers huge pay raises since the election.
The Chancellor is still under intense pressure to make the most of any room she has to reverse her cruel decision to cut Winter Fuel Payments.
However, Treasury officials have warned that a number of Labour’s main manifesto money-raising pledges will not generate nearly as much cash as they anticipated in advance of the Budget. As a result, Labour is increasingly running into roadblocks.
Plans to eliminate the nondom tax status are among them.