Rachel Reeves is reportedly weighing up a cut to the tax-free lump sum pensioners can take at retirement, in a move that could raise billions for the Treasury but trigger a backlash among savers.

The Chancellor has been presented with the option of reducing the maximum tax-free withdrawal from £268,000 to as little as £40,000, as she looks for ways to fill the gap in the public finances, according to The Telegraph .

While Treasury officials have stressed that pension reform is “unlikely” to be a priority in this autumn’s Budget, industry figures believe it may prove too tempting to ignore given the need to raise money for the public purse.

How the system works now

At present, pension holders can withdraw up to 25 per cent of their retirement savings tax-free, capped at £268,275.

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