What Rachel Reeves could do to pension tax at the Budget
How pension tax could change in Rachel Reeves’ Budget
- Chancellor Rachel Reeves faces the challenge of finding at least £22bn for the upcoming Budget, driven by increased borrowing costs and subdued growth forecasts.
- With major tax bases like income tax, VAT, and national insurance potentially off-limits, the government is exploring other revenue streams, including property, capital gains, and pension policies.
- Despite previous reluctance from the pensions minister, speculation about changes to pension policy is rife, leading to a 36 per cent increase in pension withdrawals in 2024/25 as savers adjust their plans.
- Two key proposals under consideration are introducing a flat rate of pension tax relief, potentially raising £15bn annually, and capping the tax-free pension lump sum closer to £100,000, which could yield £2bn.
- While the Chancellor has hinted at tax rises for the wealthy, concerns have been raised that such pension reforms could negatively impact public sector workers and prove politically contentious.