Investment companies have said people are ‘stampeding’ to withdraw cash amid concerns the tax free lump sum could be targeted in the budget
Concerns have been raised that Chancellor Rachel Reeves could target tax free pension withdrawals (Image: Getty)
Support is soaring for a plan being put to the government to protect people’s pensions from potential tax raids. There are concerns Chancellor Rachel Reeves could target tax-free cash lump sums from pensions in her November 26 budget – meaning savers are rishing to take the money out.
So many have decided to withdraw money that pension firms have warned of a repeat of last year, when many acted on speculation and pulled out lump sums, but then found Rachel Reeves did not adjust the limit in the Budget. Leading investment platform AJ Bell has called for the Chancellor Rachel Reeves to come out against changes now, to discourage people from making hasty decisions that could harm their retirement finances. A new petition on the Parliament website is soaring in support, with thousands of signatures added just today.
It urges Ms Reeves to introduce a Pension Tax Lock to help protect retirement savings and incentives. The petition will prompt an official response from the Treasury when it reaches 10,000 signatures and could even force a debate in the Commons if it is backed by 100,000.
It says: “The Chancellor should introduce a Pension Tax Lock: a commitment not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions. We believe this would help ensure retirement savings are protected and people can save with confidence.
“We believe this simple commitment could put an end to the speculation seen ahead of every Budget – speculation which we think erodes confidence in long-term saving and can all-too-often lead to people making poor, sometimes irreversible, financial decisions.
“We think this would come at zero cost to the Exchequer and would allow people to save for retirement with more confidence. We feel it could support the government’s twin aims of delivering pensions adequacy and boosting economic growth.”
Mark Cunningham, partner at accountancy firm Blick Rothenberg, said: ‘“With the next Budget imminent, speculation is again building. If no changes are intended, it could be seen as irresponsible of the Chancellor not to confirm this in advance, given the previous history and the impact on those approaching retirement.”
Pension experts have issued alerts to savers in the wake of twin statements issued on tax-free cash cancellation rules by the Financial Conduct Authority and HMRC – and one has demanded the Chancellor simply rule out the move now. Leading investment platform AJ Bell has called for the Chancellor Rachel Reeves to come out against changes now, to discourage people from making hasty decisions that could harm their retirement finances.
AJ Bell’s head of public policy Rachel Vahey said: “The Chancellor needs to publicly rule out changes to tax free cash in order to put an end to speculation. Doing so would alleviate uncertainty and show that the government is on the side of workers saving for the future.”
Last year, it was expected that the government might further restrict the 25 per cent tax-free cash that can be taken from pensions (currently capped at £268,275) or reduce the higher rate tax relief on pension contributions. In the event neither happened, although pension providers reported afterwards that there had been a spike in people accessing pension funds in advance of the Budget.
Marianna Hunt from pensions provider Fidelity International said: “This may have had negative consequences for future financial planning for those individuals. This highlights the dangers of making financial decisions on the back of speculation, without seeking advice or guidance on your options.”
Meanwhile, the FCA has explained there is no ‘right to cancel’ a tax-free cash withdrawal, though pension providers might voluntarily offer this option to customers if they wish. And HMRC has confirmed any tax consequences cannot be undone if you do cancel – so the withdrawal will still count towards someone’s tax-free lump sum limit, which is currently £268,275, even if it is unwound.
To view the petition click here.
