RUTH SUNDERLAND: Chancellor gains reputation as a pension thief

Rachel Reeves is gaining a reputation as the country’s biggest pension thief. Her doom-laden rhetoric about the dire state of public finances has allowed the damaging narrative to take root that she plans to plunder the savings of those considered “rich.”

Absurdly, Labor sees this as anyone with a reasonably good income paying a higher tax rate, along with individuals who have sensible amounts set aside for their old age.

We don’t yet know exactly what she has planned for the budget at the end of this month. But it has created a climate of fear, with a cauldron of speculation about attacks on pensions.

Reports suggest she has backed away from the idea of ​​cutting tax relief on premiums for higher-rate taxpayers due to its damaging impact on public sector workers. It is also believed that Reeves has abandoned plans to reimpose the lifetime limit on pension nest eggs, also because of the adverse impact on some wealthy public sector professionals.

Now she is considering a new approach: reducing the amount that can be considered a tax-free lump sum.

Currently, people can withdraw up to 25 per cent of their pension pot as tax-free money, up to a maximum of £268,275. Reeves is said to be considering a cut to £100,000 – a move recommended by the increasingly prolific and strident Institute for Fiscal Studies (IFS).

The concession costs around £5.5 billion a year and most of the proceeds go to relatively wealthy countries.

Lowering the cap to £100,000 would theoretically save around £2 billion a year in the long term, the IFS says.

But by reducing the appeal of the tax-free lump sum, people are likely to change their behavior by paying less into their pension fund, or retiring earlier than they otherwise intended.

It would also be grotesquely unfair to those who have included this in their retirement planning.

It would amount to retroactive taxation, something economists decry because it undermines confidence in the fairness of the system.

The Chancellor could decide to soften the blow by introducing a transition period, but that would be complicated.

If it continues, savers will rightly feel that they have been duped and duped into paying into a pension scheme under false pretenses. Confronting people who have worked and saved for years with a vengeful financial blow is no way to win hearts and minds.

In human terms, this translates into dreams in which travel is disrupted, plans to pay off the mortgage are thwarted, and the hope of helping children and grandchildren who have to be abandoned.

Reeves’ best bet against deciding not to take this ill-advised course of action is for her to realize that this, like the other thefts she has considered, will harm her beloved public sector employees. The IFS says this would affect around half of them, and one in five overall.

Doctors’ unions are already threatening an exodus. Since public sector workers are the only species Reeves seems to care about, this could push her to back out.

Her bias is insulting to those who work in the private sector, which creates the wealth and tax revenue that supports the NHS and other public services – and their pensions.

But let’s hope she reconsiders, whatever the reason.