Speculation about Government action to curtail the ability of pension scheme members to take a tax-free cash lump sum on retirement has been simmering for a number of years.

Whilst historically this has often been dismissed as scaremongering, the idea appears to be gaining credibility – most recently having been embraced by influential economists at the IFS. John Broome Saunders, Actuarial Director at BROADSTONE, the independent pensions and investment expert, said “There must now be a big question mark over the ongoing status of the 25 percent tax free lump sum. Tax-free cash has historically been the carrot to incentivise people to save for retirement – but with the roll-out of auto-enrolment, Government pension strategy is moving from carrot to stick – meaning there’s less need for such an incentive.

Capping the amount of tax-free cash available – as suggested by the IFS – is one option. Alternatively, the Government could simply start taxing the lump sum, perhaps at a lower rate. This must be appealing to HM Treasury – a 20 percent tax on pension lump sums could raise an extra £1bn every year.”