UK (Parliament Politics Magazine) – Fabian Society urges Chancellor Rachel Reeves to cut tax-free pension payouts to £100k, sparking a rush of withdrawals ahead of November tax changes.
As reported by The Telegraph, Rachel Reeves faces calls from a pressure group she belongs to, urging her to limit tax-free pension lump sums to £100,000.
Currently, savers are allowed to withdraw 25% of their pension tax-free from age 55, up to £268,275.
What did the Fabian Society say about cutting tax-free pensions to £100k?
Ahead of the November 26 Budget, the Fabian Society has proposed cutting the pension allowance by two-thirds to raise £2bn.
The group said pensions are systemically under-taxed and the current rules are “too generous and clearly unfair.”
The government declined to comment on speculation, though the plan has sparked concern among savers over Ms Reeves’s association with the society.
The Chancellor previously confirmed she has been a Fabian for nearly as long as she has belonged to the Labour Party. Following her election to Parliament, she served on the Fabian Society’s executive committee, having previously been secretary of the Young Fabians.
The group’s analysis outlined ways for Ms Reeves to increase revenue without violating Labour’s pledge to keep income tax, VAT, and National Insurance unchanged.
The report avoided recommending cuts to public spending, saying services are overstretched and ‘on their knees,’ and such moves would be impractical and politically unfeasible.
Andrew Harrop, the Fabian Society’s former general secretary, outlined his reasoning for capping the lump sum at £100,000, saying, “These are progressive policies that would raise revenue from wealthy older people who have pensions that were historically under-taxed.”
He stated,
“But the Chancellor knows the media backlash she could expect. Rich savers nearing retirement would argue that their big untaxed lump sum was part of the pension ‘deal’ on which they had based their plans.”
Mr Harrop added,
“Transitional protections would probably be needed for people near their pension age. Or perhaps the Chancellor will proceed gradually, reducing the maximum tax-free amount in steady slices of £20,000 or £30,000 at a time?”
Last year, the Fabian Society argued for reducing the lump sum, but after officials asked a pension provider to assess the impact, Ms Reeves decided against it.
Mr Harrop admitted that political constraints limit the Chancellor, making a cut in the £60,000 annual pension allowance to £40,000 more likely.
The £60,000 data represents the standard annual pension contribution eligible for tax relief.
The report comes after two pension experts said they were considering cashing in their lump sum if the Chancellor cut the allowance in the autumn Budget.
What did Jason Hollands say about pension cap rumours?
Jason Hollands of Evelyn Partners said it was unsurprising that the policy was promoted, noting that pensions minister Torsten Bell had previously supported a £40,000 cap.
He slammed the government for failing to tackle the pension rumours, which he said were “causing real consternation.”
Mr Hollands added,
“Mr Harrop and other advocates of such a move should realise that this would go down like a lead balloon in the public sector which accounts for a big chunk of pension tax reliefs, unless such a move is accompanied by a highly controversial carve out which would patently be deeply unfair given the gaping chasm in generosity of provision that already exists.”
What did Helen Morrissey say about savers rushing pension withdrawals?
Helen Morrissey of Hargreaves Lansdown said some savers plan to use the money for mortgages or renovations, but many are acting on a risky “knee-jerk” reaction.
She stated,
“One approach people may think they can take is to take the tax-free cash now and then if the change doesn’t happen, just reinvest it back into their pension. However, doing this could put you at risk of breaching pension recycling rules, which could see you clobbered with a hefty fine of up to 55pc.”
Ms Morrissey added,
“It’s also worth saying HMRC recently clarified that people would not be able to put in a request for their tax-free cash and then cancel it should the announcement not be made.”
Expected tax changes in the upcoming Budget
Before Britain’s Autumn Budget on November 26, 2025, Rachel Reeves is considering several tax changes to address a fiscal shortfall.
The Budget may include changes to Inheritance Tax, Capital Gains Tax, and property levies, plus limits on lifetime gifts. It may extend the freeze on Income Tax thresholds, pulling more earners into higher brackets.