Copy article

£100k cap on pensions tax-free lump sum cap: "Poor form. Poorer economics."

ended 09. October 2024

Ahead of the Autumn Budget, and amid the usual leaks that precede it, the government is said to be considering limiting the amount of cash that can be withdrawn tax-free from pensions to £100k. Experts have slammed it as a “shambolic idea” and “yet another attack on those who have diligently saved for their future”. As many people use their tax-free cash to reduce their mortgage, they warned this “policy could disproportionately impact older individuals, who may now face unexpected financial challenges at a crucial time in their lives".

7 responses from the Newspage community

Copy all

Star Quote
Copy

Editor
Michelle Lawson
Director at Lawson Financial
Any changes to pensions and investment retirement planning can have disastrous consequences. People are encouraged to plan for their future and retirement and take appropriate advice but when the goalposts keep changing this becomes an impossible task. This could leave many people exposed financially, especially those that have purposefully used the tax advantages to boost their pension pots to repay their interest-only mortgages. To impose a tax-fee cap on the withdrawal of funds will leave lenders with debts that can't be repaid and borrowers with mortgages that can't be paid. Labour's Laurel and Hardy double act seem focused on the cash grab but not the consequences.
Copy

Editor
Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
Chancellor Reeves’ latest pension pot pinch threatens to tarnish retirement prospects for an entire generation. With Labour's commitment not to raise income tax, NI, or VAT, pensions are once again in the crosshairs, with a change that could reduce the appeal of pensions altogether. Furthermore, the repercussions of this policy shift could ripple through the mortgage sector, as with less tax-free cash available, retirees may be forced to extend their mortgages considerably. Additionally, if fewer retirees can afford to downsize, this could directly impact housing market liquidity and put further pressure on property prices. The uncertainty surrounding these changes is already causing anxiety among savers, with the potential for a sudden withdrawal rush to cause a selling crisis in pension assets, driving down valuations in the short-term. Consequently, the coming weeks may determine whether the dream of a mortgage-free retirement remains within reach for Britain's future pensioners.
Copy

Editor
Ben Perks
Managing Director at Orchard Financial Advisers
If you're a long serving Police Officer whose made plans to utilise their Pension Commencement Lump Sum you're going to be pretty pee'd off, and rightly so.
You cannot just move the goal posts on someone's retirement provision. This will almost definitely see more people taking mortgage debts into retirement, which will leave many feeling uncertain.
Our aging workforce could be about to get older.
Copy

Editor
Harps Garcha
Director at Brooklyns Financial
The potential changes to the tax-free lump sum could cause undue stress for many who had planned to use it to reduce their mortgage. For those nearing retirement, this sudden shift leaves them with limited options to adjust their financial plans, potentially forcing some to sell and downsize. This policy could disproportionately impact older individuals, who may now face unexpected financial challenges at a crucial time in their lives.
Copy

Editor
Simon Bridgland
Director at Charwin Private Clients
Yet another rumour doing the rounds is Rachel Reeves, fiddling in a bad way with pensions. Limiting the amount which consumers can take tax free from their pension funds. The effect for some will be devastating, having significant financial detriment on their future retirement plans, especially if being used to pay down mortgage and other debts. Those affected by this would have to potentially work longer or look to other means to clear any debt. Not as good a retirement as many would hope for, but apparently they are wealthy and can afford it.
Copy

Iain Swatton
Director at Exemplar Financial Services
Reports that the government may cut the amount of tax-free cash that can be withdrawn from pensions in the upcoming Budget will undoubtedly feel like another blow to pensioners. For many, accessing their lump sum is a key part of their retirement strategy, and while this change may primarily impact those with larger pension pots, there are mortgage holders relying on these funds to repay their loans. This could place them in a very difficult position. Even if the numbers are small, it all adds up to yet another attack on those who have diligently saved for their future.
Copy

Patricia McGirr
Founder at Repossession Rescue Network
This is a shambolic idea. Totally without merit. People who save and invest wisely to create a secure retirement must be free to use their capital as they choose at a time when they’re ready to enjoy the fruits of their labours. Those reliant on using this cash windfall to pay off a remaining mortgage or other debts to reduce their outgoings will feel this the most. This is just another raid on those of pensionable age. Poor form. Even poorer economics.