The UK chancellor Rachel Reeves is considering plans to cap UK tax free lump sum withdrawals at £100,000 in a bid to shore up the public finances, according to a report in The Telegraph.
It was reported that government officials had 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.
In reaction, Graham Crossley, NHS pension specialist at Quilter said: “A move like this could stoke fear amongst public sector workers that the government is coming for their pensions.
“The government really needs to start thinking about the consequential impact. Many individuals have earmarked their lump sums to settle mortgages, and their financial plans would be left devastated.
“We could see significant numbers of senior healthcare workers bringing forward their plans to retire to avoid whatever the next attack on their pension could be. We recently saw consultants accept pay deals, but if the government then takes away some of that benefit by taxing the extra lump it created, we could see a return to pay unrest and strikes.
Crossley added: “There’s a risk that it could end up costing more to fix the problems this could create, such as increased waiting lists, compared to the tax take from such a move. The government could really shoot themselves in the foot with this.
“They could introduce this fear of a future pension tax grab, but then find themselves with little additional tax revenue in the short term as higher earners may be able to rely on existing Lifetime Allowance protection certificates which safeguard their maximum tax-free lump sum amount.
“The government needs to tread carefully.”
