Chancellor Rachel Reeves is weighing up a cut to the amount of pension savings that can be withdrawn tax-free, as Treasury officials prepare options to help her plug holes in the public finances.
At present, savers can take 25% of their pension pot tax-free, up to £268,275, once they reach 55. That minimum age will rise to 57 in 2028. A reduction in the allowance — potentially raising £2billion — is understood to be on a list of measures being drawn up by civil servants ahead of the October budget.
Reeves ruled out more drastic changes last year, when cutting the limit to £100,000 was considered.
However, with rising borrowing costs, inflation stuck at 3.8% and costly U-turns on welfare reforms eating into her budget headroom, the chancellor is under pressure to find fresh revenue.
Torsten Bell, the new pensions minister and former head of the Resolution Foundation, has previously argued the cap should fall as low as £40,000. However, allies of Reeves have been careful not to commit, saying they will not rule measures in or out before budget day.
Speculation alone could spark a repeat of last year, when investment platforms reported a surge in people cashing in their lump sums early to pre-empt changes. AJ Bell said its customers took about £300million more than expected in the run-up to Reeves’s last budget.
Asked about the speculation, a Treasury spokesperson declined to comment on pensions specifically but said: “The best way to strengthen public finances is by growing the economy — which is our focus.
"We are committed to keeping taxes for working people as low as possible, which is why, at last autumn’s budget, we protected payslips and kept our promise not to raise income tax, national insurance or VAT.”