Is a ‘pensioners tax’ coming in Labour’s budget?

Currently, savers who are 55 and over can withdraw 25 per cent of their pension without incurring any tax charges up to £268,275. 

However, after engaging with Britain’s top pension providers, the government may drop the threshold to £100,000.

Investment firms have reported a surge in people withdrawing pension savings or increasing contributions to Sipps (Self-invested personal pensions).

The Institute for Fiscal Studies (IFS) estimates the move could impact one in five retirees. 

However, financial experts have advised people to not make any rash decisions before the budget announcement on Wednesday. 

In better news, the state pension triple lock is expected to remain in place, and state pensions are set to rise by 4% in April 2025. 

Labour Chancellor Rachel Reeves has stated ‘difficult decisions will need to be made’ ahead of Labour’s first budget announcement in 14 years, but these latest tax rumours have led some to believe the Government is unfairly picking on pensioners. 

Millions of people of pension age have already been hit with the loss of their Winter Fuel Payment, with future payouts of the £300 benefit only being made to those receiving pension credit or other means-tested support.

Ring-fencing benefits and pension withdrawals pose the potential for greater financial challenges in later life, especially for people self-funding care. Labour have scrapped the long-postponed plan to cap social care costs, and are yet to unveil further details of their proposed ‘National Care Service’. Meanwhile the Department of Health and Social Care estimates that one in seven people will face care costs of more than £100,000. 

If you’re worried about what Wednesday’s announcements could mean for your pension, or are looking for support on financial matters, Age UK has a wide range of free resources available. You can also connect with an accredited financial adviser through the Society of Later Life Advisers (SOLLA).