If something costs £4bn a year and appears to disproportionately benefit the well off, what do you think is likely to happen to it in today’s fiscal and political environment? I think we all know the answer to that: it’ll be axed.
With that in mind, MoneyWeek readers might like to look to their pensions and the 25% of their pot they are currently entitled to withdraw free of tax at the age of 55. In this week’s Sunday Times, former pensions minister Steve Webb warned of something we have been telling you about here for some time: there is, he says, a strong chance that the tax-free lump sum is about to disappear.
This has been on the cards for a while, but if George Osborne decides to introduce a new Isa-style pension in his March statement – one that means all income that goes into a pension goes in taxed, but with a flat-rate top up – “this tax break quietly disappears.”
If the money has already been taxed, it can’t ever be “tax-free” as it is now (the 25% currently goes in tax-free, grows tax-free and comes out tax-free).
It might be that the pension cash you and I have saved already will keep the perk – and just new money will lose it. Or Osborne might see the chance as a wonderful way to dump it altogether.
If you haven’t yet taken your tax-free lump sum, and you are old enough to do so, now might be a really good time to think about it.