Labour says no plans to end tax-free lump sum option for pensioners

Labour has denied it plans to stop people accessing a lump sum of their pension pot tax-free after Sir Keir Starmer suggested the entitlement would end.

The party indicated leader Sir Keir had accidentally confused different tax measures as it sought to clarify comments he made during a BBC Radio 5 Live phone-in with Nicky Campbell.

Over-55s were given greater flexibility over how they could access their retirement savings by pension freedoms introduced from 2015.

The ability to withdraw 25% of your pension as tax-free lump sum is a permanent feature of the tax system and Labour are not planning to change this

Asked if he planned to remove the option of people being able to withdraw 25% of their pension pot as a tax-free lump sum, Sir Keir replied: “It runs out in a number of years and we’re not going to renew it.”

Asked why, Sir Keir said: “We’ve got to ensure that every single thing that we put in our manifesto, everything that we commit to, is fully costed and fully funded.”

Told it was a significant change, Sir Keir said: “The Prime Minister claims, or seems to claim, that no pensioners are paying tax, he knows that’s not true, millions of pensioners are paying tax and they’re paying tax under his Government.

“At the last budget they set out the arrangements for tax for pensioners and what’s in our manifesto carries on with the Government’s budgeted plans that were costed by the Government.”

He went on to criticise further “unfunded” pledges made by Prime Minister Rishi Sunak .

Pressed on when Labour would be removing or not renewing the tax-free lump sum option, Sir Keir replied: “It runs out in two or three years’ time.

“Obviously we’ll review the situation then but I’m not going to do what others might, which is to sit in your studio and make promises unless they’re fully funded and they’re sustainable.”

A Labour spokesperson said in response: “The ability to withdraw 25% of your pension as tax-free lump sum is a permanent feature of the tax system and Labour are not planning to change this.

“Keir was referring to temporary tax breaks in the system that are due to expire and which the public finances assume will not continue, like increasing the stamp duty threshold for first-time buyers from £300,000 to £425,000.”