Reeves rules out pension lump sum cut

Rachel Reeves will not reduce the tax-free pension lump sum allowance in this month’s Budget, officials have confirmed.

The Treasury has ruled out any changes to the amount individuals can withdraw from their pension without paying income tax, following reports of a wave of withdrawals from pension funds.  

Currently, most savers are allowed to take 25% of their pension pot tax-free from the age of 55, up to a maximum of £268,275.

The Chancellor had been considering a cut to the Pension Lump Sum Allowance as a possible way to help fill a gap of up to £30 billion in the public finances.

The Fabian Society, a well-known think tank aligned with Labour, had recommended reducing the tax-free lump sum to £100,000. This was a proposal Ms Reeves also weighed up ahead of last year’s Budget. Torsten Bell, the Pensions Minister, had previously supported lowering the limit to just £40,000.

The Chancellor’s refusal to rule out changes last year led to a sharp rise in pension withdrawals. In 2024-25, savers withdrew more than £70 billion from their retirement pots, an increase of 36% compared to the previous year.

However, Treasury officials have now confirmed to The Telegraph that Ms Reeves will not make any changes to the limit when the Budget is announced on 26 November.

The confirmation comes after reports that many retirees were acting early to access their funds in fear of a potential tax increase.

What is the Lump Sum Allowance?

The Lump Sum Allowance is one of the three new allowances which were introduced following the abolition of the Lifetime Allowance on 5 April 2024.  

In simple terms the Lump Sum Allowance limits the overall amount of tax-free lump sums you can take from your pension funds during your lifetime.  

For most people this lifetime limit is £268,275.

This does not mean you can take all of your pension pot as a tax-free lump sum if it is worth less than £268,275, as there are rules in place that limit the tax-free amount you can receive to either 25% of the value of the pension pot you are crystallising, or £268,275 – whichever is the lower figure.  

If you’re interested in how to manage you pension withdrawals to ensure the best possible outcome for you and your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.