Labour warned its raids on pensioners’ cash will ruin lives

Rachel Reeves is being urged by influential left-wing think tank The Fabian Society to cap the tax-free amount at £100,000.

Jason Hollands, of Evelyn Partners, told the Telegraph that doing so would be a “very aggressive move”.

He said: “The tax-free cash lump sum is one of the key features of pension investing, so raiding it would be a highly visible and deeply unpopular move and would effectively amount to a moving of the goal posts in the late stages of a football game.

“In such a scenario, it would likely force some people to reassess their plans, which in some cases might require them to sell their homes and downsize or push out their retirement date.

“Given reports that some people are withdrawing a quarter of their pensions in a panic, which may not turn out to be the right move, this is an area where the Government should create some clarity as soon as possible by ruling it out if this isn’t being planned.”

Standard Life’s Mike Ambery shared the concern, noting that a change to the rules was “on the table” and could bring about “unintended consequences”.

He added: “Any individual relying on tax-free cash to extinguish an outstanding mortgage debt will need to work out what’s the other alternative – continue working, draw on other savings to be able to clear the mortgage or extend the mortgage. This could be in lifetime mortgages or equity release over a longer timescale.

“The last thing you want to do is have the insecurity of home ownership when you potentially thought you were going to clear it with tax-free cash at the point of retirement. They now need to search for a few tens of thousands [of pounds].”