Tax-free cash is shrinking

THE freedom to take 25 per cent of your pension pot free of tax is a popular perk but a little-noticed reform by Chancellor Jeremy Hunt could make it much less attractive.

- Harvey

Hunt has quietly set a cap on the maximum amount of total tax-free cash pensioners can withdraw and its real value is likely to steadily erode via a process known as fiscal drag.

This happens when tax thresholds are frozen, reducing their value as asset values rise over time.

Pension provider and financial adviser Quilter has warned the new cap is unlikely to rise and this could Jones shrink the value of the 25 per cent tax free cash for those with larger pots, who risk losing thousands of pounds to HM Revenue and Customs.