Recent research has found that 90% of over-50s don’t trust the Government will keep the 25% tax-free lump sum rule.
Currently, once a person retires they are allowed to withdraw 25% of their pension fund in a lump sum that will not be tax.
With all major parties hinting that they would be looking at tax-relief in a bid to raise more revenue for the treasury. Labour is expected to either completely withdraw the tax-free lump-sum clause, or reduce it should they be elected in 2015.
A report by the Pensions Policy Institute was published in 2013 that said a cap of £36,000 on tax-free lump sum withdrawals should be put in place, rather than the current 25% of the pension fund.
A move such as this would impact anyone who had pension savings in excess of £144,000, but the PPI insisted that it would be a fairer way of distributing tax breaks.
Financial experts have told the current Coalition Government that a cap would be a sensible move and could raise approximately £2 billion a year.
The over-50s firm, Saga, conducted the research for The Telegraph. It found that only 9% of people aged 50-59 felt the current tax-break would be in place when they retired.
Almost three-quarters said they didn’t expect whichever party next came into power to keep the rule as it is.
Some financial experts think the Government will bring in an initiative that will link the tax-free lump sum available to paying for long-term care later in life, which it hopes would mean less people would have to sell their homes and assets to pay their care bills.
The Government is looking for ways to encourage people to think ahead and plan for any long-term care that may be needed.
One solution could be to shift the tax-free lump sum into an insurance policy to cover against the costs incurred of a lengthy stay in a care home.