A pressure group of which Rachel Reeves is a member has urged her to cut the tax-free pension lump sum to £100,000.

At present, most savers can take 25pc of their pension pot tax-free once they reach the age of 55, up to a maximum of £268,275.

However, the Fabian Society, a prominent Labour-associated think tank, has suggested cutting the allowance by two-thirds at the Budget on Nov 26 in an attempt to raise £2bn.

It claimed that pensions were “systemically” under-taxed and that the current rules were “too generous and clearly unfair”.

The Treasury refused to comment on “speculation”, but the proposal will raise fears among savers given Ms Reeves’s close relationship with the society.

The Chancellor has previously described herself as being “a Fabian [for] almost as long as I have been a member of the Labour Party”. She also sat on the society’s executive committee after becoming an MP and was the secretary of the Young Fabians before that.

The report outlined how Ms Reeves could raise taxes without breaking Labour’s manifesto commitments not to raise income tax, VAT or employee National Insurance contributions.

It did not propose any cuts to public spending and argued that services were “on their knees” and this would be “neither practically deliverable nor politically possible”.

Making the case for cutting the lump sum to £100,000, Andrew Harrop, the society’s former general secretary, wrote: “These are progressive policies that would raise revenue from wealthy older people who have pensions that were historically under-taxed.

“But the Chancellor knows the media backlash she could expect. Rich savers nearing retirement would argue that their big untaxed lump sum was part of the pension ‘deal’ on which they had based their plans.

“Transitional protections would probably be needed for people near their pension age. Or perhaps the Chancellor will proceed gradually, reducing the maximum tax-free amount in steady slices of £20,000 or £30,000 at a time?”

The Fabian Society made a similar case for cutting the lump sum last year. While government officials instructed a pension provider to assess the impact, Ms Reeves ultimately decided against it.

However, Mr Harrop conceded the Chancellor was “constrained by practical politics” and that a cut in the annual allowance for pension contributions from £60,000 to £40,000 was “more likely”.

The £60,000 figure is the standard annual limit on pension savings that individuals can make each tax year and still receive tax relief.

The Fabian Society’s report comes after two leading experts revealed they were contemplating cashing in their lump sum in case the Chancellor cut the allowance in the autumn Budget.

Wealth managers also said there had been an increase in clients taking their tax-free cash in greater numbers than usual. The investment platform Bestinvest saw a 33pc rise in Sipp withdrawal requests last month compared to the previous two-year average.

The size of the pension income withdrawals also markedly increased, up 146pc over the same period.

Jason Hollands, of wealth manager Evelyn Partners, said it was “unsurprising” that the policy was being promoted, given that Torsten Bell, the pensions minister, previously advocated capping it at £40,000 when he was running the Resolution Foundation think tank.

‘Causing real consternation’

However, Mr Hollands criticised the Government for failing to shut down the rumours, which were “causing real consternation”.

He added: “Mr Harrop and other advocates of such a move should realise that this would go down like a lead balloon in the public sector which accounts for a big chunk of pension tax reliefs, unless such a move is accompanied by a highly controversial carve out which would patently be deeply unfair given the gaping chasm in generosity of provision that already exists.”

Helen Morrissey, of Hargreaves Lansdown, said that while some savers would have a plan to use the money to pay off a mortgage or carry out home renovations, others were doing so as a “knee-jerk reaction,” which came with risks.

She said: “One approach people may think they can take is to take the tax-free cash now and then if the change doesn’t happen, just reinvest it back into their pension. However, doing this could put you at risk of breaching pension recycling rules, which could see you clobbered with a hefty fine of up to 55pc.

“It’s also worth saying HMRC recently clarified that people would not be able to put in a request for their tax-free cash and then cancel it should the announcement not be made.”

A Treasury spokesman said: “We do not comment on speculation around future changes to tax policy.”