The Liberal Democrats are targeting cuts to tax-free lump sums withdrawn from pension pots on retirement as part of a further raid on pension tax relief.
In a taxation policy consultation published ahead of its spring conference in March, the Lib Dems argue that the current tax-free lump sum allowance of 25 per cent could be reduced.
The paper states: “An option could be to change the limit for the lump sum that may be taken tax free from a person’s pension pot on retirement. Currently, a taxpayer may take 25 per cent of their pension pot as a tax free lump sum withdrawal.
“However any change in this area needs to be carefully considered in light of the financial plans that people have already made.”
The paper also argues for further cuts to annual pension tax relief from £40,000 to £30,000, despite being cut from £50,000 in the autumn statement in December. The Lib Dems also want to see the lifetime allowance cut back to £1m from £1.25m after being cut from £1.5m in December.
The paper states: “We are considering further reductions in the annual and lifetime allowances – perhaps to around £30,000 and £1m respectively.
“If we introduced such changes, we would propose to leave reliefs at these levels for some time, to allow a period of certainty in pension planning.”
In December, Treasury chief secretary Danny Alexander told Money Marketing there would be no more changes to relief in this parliament.