The Treasury has refused to rule out a fresh tax raid on pension savings following the appointment of a new minister to the Department for Work and Pensions (DWP) who has previously called for radical reforms.
Torsten Bell, former head of the Resolution Foundation, was handed the role in a mini-reshuffle prompted by Tulip Siddiq’s resignation as City minister.
Fears are growing that the appointment could signal another assault on retirement savings under the Labour Government’s fiscal agenda, which is being set by Chancellor Rachel Reeves.
Bell has previously criticised the triple lock pension system, which ensures annual pension increases match the highest of inflation, earnings growth or 2.5 per cent, describing it as a “silly system” that should be scrapped.
He has advocated in the past for a complete overhaul of pensions tax relief and proposed dramatically reducing the tax-free pension withdrawal limit from £268,275 to £40,000.
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Labour’s new pensions minister has floated a new tax raid on pensions
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The former think tank boss’s appointment has triggered speculation that the Chancellor may target pension savings to address public finance shortfalls. Reeves has warned about the £22billion “black hole” in Government expenditure left by the Conservatives.
Recent bond market turbulence has eliminated the Chancellor’s fiscal headroom, potentially forcing a choice between tax increases or spending cuts in a possible March mini-Budget.
The uncertainty has already affected saver behaviour, with many rushing to withdraw funds from their pension pots before Labour’s October Budget amid fears of an impending tax raid.
Among the options previously considered were reducing the tax-free pension withdrawal limit at age 55 from £268,275 to £100,000. The Government also explored cutting tax relief on pension contributions for higher earners, which would have impacted those paying 40p or 45p income tax rates.
Pensioners are worried about a potential looming tax raid
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Neither measure was implemented in October’s Budget. Instead, Reeves introduced a new death duty by making pension pots subject to inheritance tax for the first time.
Baroness Altmann, a former pensions minister, expressed concern about the direction of policy. “I’m afraid it has been clear since the election that pensions and pensioners are in the line of fire,” she said.
“I hope that the new pensions minister will look after pensions but I fear the removal of IHT and the Winter Fuel Payment decision indicates private and state pensions are under attack,” she added.
Former pensions minister Sir Steve Webb has called for clarity on the Government’s intentions. “We really don’t want more rounds of speculation before every Budget,” said Webb, now a partner at pension consultants LCP.
He urged for “a clear commitment to leave pension tax relief alone for the lifetime of the Parliament.” The uncertainty around pension policy comes as homeowners face fresh pressure from rising mortgage costs.
A new wave of lenders are increasing their borrowing rates, with Santander raising its products by up to 0.34 per cent. The rate hikes are being driven by ongoing bond market turmoil, which has been fuelled by concerns over government tax and spending policies.
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Jon Greer, the head of retirement policy at wealth management firm Quilter, questioned whether the Government would be able to implement the tax changes put forward by the Resolution Foundation.
He said: “While Bell has previously advocated for radical pension tax reforms — such as moving to flat-rate pension tax relief and capping the tax-free lump sum at £40,000 — these ideas often fail to account for the practical realities facing savers who have relied on the stability of the existing system.”
A Government spokesperson told GB News: “Our commitment to the triple lock is unwavering because we want pensioners to enjoy the dignity and respect they deserve in retirement. This means millions will see their State Pension rise by up to £1,900 over this parliament.”