Pensioners 'risk costly mistakes' as Rachel Reeves refuses to rule out tax change

Rachel Reeves needs to provide "clarity" on the future of the pension tax-free lump sum as the uncertainty around pensions is "dangerous", finance experts have warned. The Chancellor has vowed that the Labour Government will "get the balance right" when she delivers her statement on November 26, as the Treasury rejected claims that it faces a £50bn black hole in the nation's finances.

Tax rises are expected, and the Government may also be looking at cost-saving measures, including changes to pensions. Among the biggest concerns ahead of the fiscal event is that the 25% tax-free lump sum from pension pots, currently capped at £268,275, could be cut back.

Reeves is yet to rule it out, according to the reports, and finance experts are stressing the importance of giving people enough time to plan.

Steve Webb, a former pensions minister and now a partner at consultancy LCP, told This is Money: "If the Government has no plans to change pension tax relief or the tax-free lump sum then it would be helpful if they made a commitment not to do so for the whole of the parliament.

That would allow people to "plan for their futures with a degree of certainty", rather than "constant uncertainty".

Jon Greer, of Quilter, warned that the "vacuum of clarity allows rumours to swirl unchecked".

He told the outlet: "When it comes to pensions, that's dangerous, "adding, "Decisions like taking a tax-free lump sum are often irreversible."

Many older workers have already rushed to withdraw money out of their pots, fearing the they'll lose the perk.

According to the Financial Conduct Authority, more than £70billion was withdrawn from pensions in 2024/25, which represents a 36% increase in just a year.

Becky O'Connor, of PensionBee, warned against rushing to take action, saying: "Withdrawing on the back of rumours that might not materialise - as opposed to your actual needs - might leave you worse off if those rumours turn out to be unfounded, as they so often are, as you could lose out on investment growth."

She added that though it's unlikely there would be overnight changes "the Government needs cash now and it is unlikely it would want to give people too much time to rearrange their long-term savings to minimise tax".

Another option on the table is reforming pension tax relief - currently worth billions to the Treasury, and most valuable to higher earners.

Experts believe Ms Reeves could scrap higher-rate relief in favour of a flat system.

A Treasury spokesperson said: "We do not comment on speculation around future changes to tax policy."

Express.co.uk has reached out to the department for comment.