UK (Parliament Politics Magazine) – Chancellor Rachel Reeves faces warnings over plans to cut the tax-free pension lump sum, raising concerns it could hit savers.
As reported by The Independent, officials warned Rachel Reeves that cutting tax-free pension withdrawals could “disproportionately hit responsible savers who have diligently put money aside.”
Chancellor Reeves could cut tax-free pension withdrawals, aiming to generate £2bn in revenue. The current tax-free pension withdrawal is capped at £268,000, allowing savers a quarter of their pot, reducing it could generate billions as the Treasury faces a £50bn gap.
What did Lisa Picardo say about cutting the tax-free pension withdrawal?
Lisa Picardo, chief business officer at pension platform PensionBee, stated,
“Such a cut would disproportionately hit responsible savers who have diligently put money aside.”
She said,
“Savers already face shifting tax rules, so removing or altering this benefit would only add more uncertainty and make it harder for people to plan with confidence.”
Ms Picardo added,
“This kind of policy shift risks punishing those who have played by the rules – it sends a signal that the goalposts can be moved after decisions have been made, further eroding trust in the pensions system.”
Steve Webb’s views on cutting the tax-free pension lump sum
Sir Steve Webb, former pensions minister, said any change to the tax-free lump sum would be highly controversial.
He is now a partner at pension consultants LCP, stated,
“For a chancellor needing money quickly, politically contentious changes which generate little short-term gain are not likely to be attractive.”
Mr Webb warned the change could hit long-standing public servants, especially those nearing retirement. He urged transitional protections for savers with pension amounts above the new cap.
What did Andrew King say about the impact of cutting the tax-free pension lump sum?
Andrew King, retirement planning specialist at wealth manager Evelyn Partners, said the change could undermine savers’ trust and reduce pension contributions.
He warned the move could be self-defeating, making savers less likely to contribute and more reliant on state support.
Mr King said,
“Let us also not forget that pension savers have been promised the ‘aspirational’ 25 per cent tax-free lump sum for many, many years, and many retirement goals would have been planned around this, such as the holiday of a lifetime, the purchase of a motorhome, new car or holiday home.”
He added,
“Reducing this would seem to be the breaking of a long-standing promise which would detrimentally affect people’s retirement plans.”
What did John Harvard say about Rachel Reeves’s options for raising tax revenue?
John Harvard, a consultant at tax firm Blick Rothenberg, stated,
“Rachel Reeves has taken all her easy choices for increasing tax revenue off the table by sticking with her manifesto promises. But one option that remains open to her is targeting pension tax reliefs.”
What did economists warn Rachel Reeves about tackling the £50bn budget shortfall?
Economists warn Ms Reeves she must raise taxes or revise borrowing rules to cover the £50bn shortfall from Labour U-turns and slow growth.
The National Institute of Economic and Social Research suggests that the Chancellor may need to consider spending cuts in the Budget to cover a £41.2bn shortfall in her fiscal targets.
The chancellor must raise £51.1bn to restore a nearly £10bn buffer in current forecasts, the institute warned.
Ms Reeves is considering taxing high-value property sales to cover the budget shortfall. She is reportedly considering removing the tax break for primary residences, a move seen as a “mansion tax” to boost government revenue.
What did ONS data say about UK borrowing in July?
Rachel Reeves sees relief as July borrowing falls to £1.1bn, below expectations. The Office for National Statistics reports government borrowing fell to £1.1bn in July, down £2.3bn from 2024.
Economists had predicted £2bn for July, but total borrowing for the first four months of the financial year reached £60bn, up £6.7bn from last year.
What did Rob Doody say about July borrowing and year-to-date figures?
ONS deputy director for public sector finances Rob Doody stated,
“Borrowing this July was £2.3bn down on the same month last year and was the lowest July figure for three years.”
He added,
“This reflects strong increases in tax and national insurance receipts. However, in the first four months of the financial year as a whole, borrowing was over £6bn higher than in the same period in 2024.”
Darren Jones’ stance on government borrowing and public spending
Chief Secretary to the Treasury Darren Jones stated,
“We’re investing in our public services and modernising the state, to improve outcomes and reduce costs in the medium term.”
He said,
“Far too much taxpayer money is spent on interest payments for the longstanding national debt.”
Mr Jones added,
“That’s why we’re driving down government borrowing over the course of the parliament – so working people don’t have to foot the bill and we can invest in better schools, hospitals and services for working families.”
Treasury spokesman’s views on strengthening public finances and taxes
A Treasury spokesman stated,
“The best way to strengthen public finances is by growing the economy, which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn.”
They added,
“We are committed to keeping taxes for working people as low as possible, which is why at last Autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of Income Tax, employee National Insurance, or VAT.”
Key facts about the mansion tax
A mansion tax applies to any residential property sold above a set price, including condos and co-ops. Rates differ by state: New York charges 1–3.9%, Los Angeles 4–5.5%, and New Jersey shifts payment from buyer to seller in 2025.
The tax depends on purchase price, not property type. Buyers and sellers often plan strategically to reduce costs.