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Gov't Budget pension reform could cause £24bn black hole

Gov't Budget pension reform could cause £24bn black hole

The government has been warned that its Budget pension reform could create a £24 billion black hole.

Pension experts have warned the Treasury that the government could miss out on £24 billion because of its pension shake-up, which included cutting the 55% tax charge for people accessing their entire pension at retirement from 2015, according to the Telegraph.

Under the plans, savers who take their pension as cash will get the first 25% tax free with the remaining 75% taxed at their marginal rate.

According to the Telegraph, experts told the Treasury this may lead to a drop in the tax taken from pension savings and there is a concern that people will pay large sums of money into their pensions and receive generous tax relief top-ups but will find a way of withdrawing their pension savings without paying tax.

The Telegraph reported that the Treasury is currently discussing reining in the 25% tax-free lump sum so individuals only withdraw 25% of the growth in their pension pots or levying National Insurance on pension contributions.

However a Treasury spokesman said: 'We are not going to get rid of the 25% tax-free lump sum. It is a key part of the pensions system.'

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