Analysts are sounding the alarm that the rumoured pension tax raid from the new Labour Government could "tarnish" the prospect of a mortgage-free retirement for millions.
Chancellor Rachel Reeves is set to outline her and Prime Minister Keir Starmer's fiscal agenda during the Autumn Budget on October 30 with pension reform likely to be on the agenda.
It is understood that Reeves is floating a cut to tax-free pension savings withdrawals and other changes to relief which has provoked outrage.
However, Britons are now being warned that what is being reported could see households paying off their mortgage well into retirement.
Treasury officials are said to have asked one of the UK's top pension providers to examine the impact of reducing the tax-free lump sum to £100,000.
As it stands, the majority of savers are able to withdraw 25 per cent of their pension without paying tax once they reach 55, up to £268,275.
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Half a million pensioners are still paying off their mortgage, according to analysts
GETTYSpeaking to Newspage, Sab Rabbit Investment's head of Macroeconomics Gabriel McKeown outlined how reducing this relief will impact homeowners.
He shared: "Chancellor Reeves’ latest pension pot pinch threatens to tarnish retirement prospects for an entire generation.
"With Labour's commitment not to raise income tax, National Insurance or VAT, pensions are once again in the crosshairs, with a change that could reduce the appeal of pensions altogether.
"Furthermore, the repercussions of this policy shift could ripple through the mortgage sector, as with less tax-free cash available, retirees may be forced to extend their mortgages considerably.
"Additionally, if fewer retirees can afford to downsize, this could directly impact housing market liquidity and put further pressure on property prices."
Britons have been forced to contend with record high interest rates amid the ongoing cost of living crisis in recent years.
The Bank of England has raised the base rate to up to 5.25 per cent, a 16-year high, as part of its efforts to ease inflation which reached 11.1 per cent in 2022.
Despite rates falling to five percent, with further cuts expected in the months, analysts have warned that interest rates will not fall to pre-Covid levels.
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The Bank of England is likely to cut interest rates once again this year GETTY This further compounds the growing financial woes for future pensioners with mortgage-free retirements now being in doubt.
McKeown broke down why the upcoming Budget will be "consequential" for retirees in the years to come.
"The uncertainty surrounding these changes is already causing anxiety among savers, with the potential for a sudden withdrawal rush to cause a selling crisis in pension assets, driving down valuations in the short-term.," he explained.
"The coming weeks may determine whether the dream of a mortgage-free retirement remains within reach for Britain's future pensioners."
