why is there a tax free lump sum? isn't government supposed to be encouraging private pension provision thereby discouraging lump sum withdrawal from retirement fund? agreed, the lump sum withdrawal will meet some needs of people, but then why tax free?
To encourage private pension saving in the first place. The lump sum is restricted, so you generally have to take some benefit as pension. If it weren't there, why would many people save via a pension arrangement in the first place? - in the current UK environment, tax deferral, possible reduction in the marginal rate of tax in retirement... would that be enough? Possibly not: other methods of saving (that don't require you taking an annuity) would be relatively more attractive but for the tax break on the lump sum.
