• Tax free cash could be withdraw either with introduction of pension ISA or by changes to the existing system
There are means by which the benefit, which enables people to take a portion of their pension without tax, could removed. The first is through the introduction of a Pension ISA which would see all contributions to saving products coming out after tax pay. The second option, which has not received much attention, is the Chancellor’s ability to keep the existing pension system as is, but simply withdraw or reduce tax free cash. With the government looking for savings, this would be a less radical change than the introduction of a pension ISA, but would still benefit the Treasury coffers.
“Many people rely on the 25% tax free lump sum from their pension as they transition into retirement. This money is typically used to meet the early costs of retirement when people often reward themselves with travel or home improvements following a lifetime of work. Taking a lump sum also gives people time to consider how they want to access their retirement income and doesn’t force them into a decision the moment they retire.
“Any cut would be a major blow as it’s one of the factors which gives pensions the edge over ISAs for tax efficiency and in doing so makes sure those who are prepared to lock up their money till age 55 are rewarded for this through preferential tax treatment.”
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