A significant tax raid on pensions, potentially raising £20 billion, could be implemented if Shabana Mahmood is appointed Chancellor, a political correspondent has warned.
Mahmood, considered a frontrunner for the position, has previously advocated for reducing pension tax relief for higher earners to help fund spending plans. This measure has been identified as a substantial revenue-raising option for the Treasury, though typically avoided by chancellors.
During a parliamentary debate in February 2015, while serving as a shadow Treasury minister under former Labour leader Ed Miliband, Mahmood expressed support for restricting pension tax relief. At the time, she stated that this measure, alongside other taxation changes, could fund a compulsory jobs guarantee.
The Institute for Fiscal Studies estimates that capping pension tax relief at the basic rate of 20% could generate up to £22 billion annually by 2029. However, a report from the think tank ahead of the previous year's Budget cautioned against such a move, warning it could adversely affect millions of public sector employees, including teachers and nurses.
Robert Jenrick expressed concern, stating that Mahmood has a history of backing pension tax raids and that savers should be apprehensive. The Reform UK Treasury spokesman echoed these concerns, arguing that such a tax would disproportionately affect nurses, teachers, and police officers who have built up their pensions over their careers. He called for clarity on the incoming chancellor's stance before any budget is announced.
Currently, pension contributions are taxed once, upon withdrawal. Experts have cautioned that altering pension tax relief could discourage individuals from saving for retirement and negatively impact public sector workers' pension schemes.
