UK FISCAL: A spending stimulus from tax free pension lump sums? (1/2)

In the Budget on 30 October there there is a lot of speculation surrounding changes to pension regulation / taxation. The most likely changes to pension in the upcoming Budget surround two aspects:

1. The most significant is potential changes to the tax free lump sum limit. At present retirees over the age of 55 can withdraw up to GBP268k tax free from their pension pot as a lump sum (with any withdrawals from their pension pot above this lump sum to income tax). There is a lot of speculation that the cap on this tax free lump sum could be reduced to GBP100k. Anecdotal evidence suggests that demand to withdraw tax free lump sums from pension pots have increased as people look to front run the potential policy introduction. Some of this money may be used to pay off existing debts (e.g. mortgages, credit cards etc) but some of this money may be spent faster than had previously been anticipated, possibly leading to an increase in consumption in coming quarters. If this is the case, this could offset some of the other expected fiscal tightening.
2. Second, changes to how inheritance tax treats pensions. At present if you die before claiming your pension or under the age of 75, your pension pot can be passed on to your beneficiaries without being eligible for inheritance tax. There seems to be a high probability that this loophole will be changed and pension pots will be eligible for inheritance tax in the future. There is very little that can be done for prior contributions, and although some HNW individuals may contribute less to pensions, they are unlikely to reduce their savings rate - instead diverting savings into other investments.