RUTH SUNDERLAND: The chancellor is gaining a reputation as a pension thief

Rachel Reeves is earning a reputation as the country’s top pension thief. His pessimistic rhetoric about the dire state of public finances has allowed the damaging narrative to take root that he intends to plunder the savings of those considered “rich.”

Absurdly, Labor sees this as anyone on a moderately good income who pays a higher rate of tax, along with people who have set aside prudent sums for their old age.

We still don’t know exactly what is planned for the end of the month budget. But it has allowed a climate of fear to be created, with a cauldron of speculation swirling about attacks on pensions.

Reports suggest he has backed away from the idea of ​​cutting contribution tax relief for higher rate taxpayers, due to its damaging impact on public sector workers. Reeves is also understood to have abandoned plans to reimpose the lifetime limit on pension savings, also due to the detrimental effects on some better-off public sector professionals.

Now he is considering a new approach: drastically reducing the amount that can be taken as a tax-free lump sum.

Currently, people can receive up to 25 per cent of their pension in cash tax-free, up to a maximum of £268,275. Reeves is said to be considering a reduction to £100,000, a move that has been recommended by the increasingly prolific and strident Institute for Fiscal Studies (IFS).

The concession costs around £5.5bn a year with most of the benefit going to the comparatively prosperous.

Reducing the cap to £100,000 would theoretically raise around £2bn a year in the long term, the IFS says.

But by reducing the appeal of the tax-free lump sum, people are likely to change their behavior by contributing less to their pension fund or retiring earlier than they intended.

Eliminating the tax-free limit would also be grotesquely unfair to those who have included it in their retirement planning.

It would amount to retrospective taxation, something economists disapprove of because it undermines faith in the justice of the system.

The Chancellor may decide to try to soften the blow by introducing a transition period, but that would be complicated.

If it goes ahead, savers will rightly feel that they have been deceived and induced to contribute to a pension scheme under false pretenses. Confronting people who have worked and saved for years with a vindictive financial hit is no way to win hearts and minds.

In human terms, it translates into frustrated travel dreams, frustrated mortgage payment plans, and hopes of helping abandoned children and grandchildren.

Reeves’ best chance of deciding against this reckless move is to realize that, like the other thefts he has contemplated, it will hurt his beloved public sector employees. The IFS says it would affect around half of them and one in five in total.

Doctors’ unions are already threatening an exodus. Since public sector workers are the only type Reeves seems to care about, this might prompt her to back down.

Their bias is offensive to those who work in the private sector, which creates the wealth and tax revenues that support the NHS and other public services (and their pensions).

But let’s hope he thinks again, whatever the reason.