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&#39Revenue aiming to axe tax-free pension cash&#39

Inland Revenue senior civil servant Paula Diggle is looking at ways to phase out tax-free cash on pensions, according to Retirement Income Reform Campaign director Oonagh McDonald.

Diggle is part of a Revenue team working on a report on pension taxation which will generate ideas for a Green Paper expected in November

Speaking at the Pens-ions in Crisis Conference in London this week, McDonald warned that abolition of the 25 per cent tax-free lump sum on retirement would remove one of the main incentives to buying a pension and would mean reduced pension take-up.

McDonald said the Government would face massive opposition to the removal of the popular benefit from employees and trade unions. In his 1985 Budget, then Chancellor Nigel Lawson described the tax-free lump sum as “an anomaly but much loved”.

McDonald said: “It looks like the Green Paper on pensions will introduce a positive disincentive to save. My understanding is that Paula Diggle is cooking up ways of phasing out the cash-free lump sum. This will go down like a lead balloon. It may be seen as an anomaly but it is an issue that the Government needs to take a longer-term view on.”

Bates Investment Services head of pensions James Jones-Tinsley says: “If they are trying to kill the tax-free cash, it will be one of the final nails in the pension coffin.

“The tax-free lump sum is one of the few perks of pension saving. I can understand why they want to do it but there are more pressing issues in pensions than the tax-free cash. I think there will be uproar.”

A Revenue spokeswoman says: “Everything in the pension area is up for review. But we cannot make any comment because the review is ongoing.”

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