In an FT article, “Tax After Coronavirus” inquiry, Philip Booth, senior academic fellow at Institute of Economic Affairs, told the inquiry that the pensions tax-free lump sum could be made less generous to help repair the nation’s finances.
“I would severely limit the tax-free lump sum that it is possible to receive from pensions . . . which would allow a lot of pensions tax simplification instead of the route that the government seem to be proposing, which is to allow tax relief only at the basic rate, which I think would cause a degree of chaos,” he said.
It has been talked about for so many years…the abolition of tax-free cash on pensions. It has been raised again. I recall many years ago when this idea was first proposed, there was a rush of people taking benefits to secure their tax-free cash. At that time, pension rules were different and taking tax-free cash did have consequences. The rules are somewhat different now, at least at the date of writing this!.
It is clear that if you could take benefits but have not yet taken action, you may need to think about how your total net worth is impacted with extra tax paid? In all of these situations, it does not require knee jerk reactions, but good intelligent thinking. Of course, we have no clear idea about what may or may not happen, but you can assess potentially worst-case scenarios. There is no substitute for allocating your time energy and thinking.