Rachel Reeves 'plotting to slash tax-free pension withdrawals' in major Autumn Budget blow

Under the current rules, the amount you can take as a tax-free lump sum when you turn 55 is capped at £268,275 - but reports suggest Labour is considering cutting this to £100,000

Rachel Reeves is reportedly considering a cut to the tax-free lump sum you can take from your pension as part of her Autumn Budget.

Under the current rules, the amount you can take as a tax-free lump sum when you turn 55 is capped at £268,275 - but the Telegraph reports that the Treasury is considering cutting this to just £100,000. Government officials are said to have asked a major pension provider to see how this would impact people when they retire.

It comes after both the Institute for Fiscal Studies (IFS) and the Fabian Society called for the tax-free lump sum to be cut to £100,000. The IFS estimates one in five retirees would be impacted by this reduction if it is introduced in the Autumn Budget. The Telegraph reports that the Treasury could choose to taper away the tax-free lump sum over time to soften the impact.

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said: “The Chancellor may have said rumoured changes are designed to hit ‘those with the broadest shoulders’ but changes to the tax-free lump sum would do irreparable damage to the pension system. This risks undermining confidence and impacting people’s retirement savings.

“We would strongly advocate for pension tax-free cash to be kept as sacrosanct in the system. People need confidence to save for the future or they will simply not have the kind of spending levels that they require to maintain their lifestyle in retirement. This will not only prove challenging for households individually but the collective impact will also be a weakening of the economy as a whole.“

The £268,275 figure is equivalent to 25% of the £1.073million lifetime allowance, which was scrapped by the Tories in April 2024. This used to be the maximum someone could build up in their pensions without paying extra tax. The IFS said in a report published last month: "While there is a case for encouraging people to save at least a certain amount for their retirement, it is hard to justify continuing to subsidise extra saving for individuals with pension wealth little short of £1,073,100."

A government spokesman said: "We do not comment on speculation around tax changes outside of fiscal events." Any changes to pensions would come after Labour axed Winter Fuel Payments for ten million pensioners. Winter Fuel Payments, which are worth up to £300, depending on your circumstances, used to be available to anyone over state pension age - but now, you must be claiming certain means-tested benefits, such as Pension Credit, to continue receiving this cash.

If you’re still eligible for a Winter Fuel Payment, you’ll get a letter in the post from the Department for Work and Pensions (DWP) in October or November. This will explain how much Winter Fuel Payment you’re entitled to.