Tax grab on NHS pensions could see 'return to strikes', government warned

The Government has been issued a warning amid rumours it could soon reduce the tax-free lump sum savers can withdraw from their pension.

It is feared the move may even see NHS workers mount a "return to pay unrest and strikes". Chancellor Rachel Reeves is reportedly mulling plans to cap withdrawals at £100,000 in the Budget on October 30 in a bid to shore up the public finances.

According to the Telegraph, officials are said to have asked one of the UK's largest pension providers to review the impact of such a move, which would reduce the limit to almost a third of its current level.

But alarms are being sounded that such a move could "stoke fear" among public sector workers and even see a return of strike action within the health service. Graham Crossley, NHS pension specialist at Quilter, said: "A move like this could stoke fear amongst public sector workers that the government is coming for their pensions.

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"The government really needs to start thinking about the consequential impact. Many individuals have earmarked their lump sums to settle mortgages, and their financial plans would be left devastated."

He added: "We could see significant numbers of senior healthcare workers bringing forward their plans to retire to avoid whatever the next attack on their pension could be. We recently saw consultants accept pay deals, but if the government takes away some of that benefit by taxing the extra lump it created, we could see a return to pay unrest and strikes."

And he warned the Treasury: "There's a risk that it could end up costing more to fix the problems this could create, such as increased waiting lists, compared to the tax take from such a move. The government could really shoot themselves in the foot with this.

"They could introduce this fear of a future pension tax grab, but then find themselves with little additional tax revenue in the short term. Higher earners may be able to rely on existing Lifetime Allowance protection certificates to safeguard their maximum tax-free lump sum. The government needs to tread carefully."

A government spokesman previously commented on the pension tax plan reports: "We do not comment on speculation around tax changes outside of fiscal events."