I’m caught in a tax free pension lump sum backlog: Will I get my £125,000 before the Budget?
I have something sip Hargreaves is working with Lansdown and wants to receive a lump sum tax-free before the Budget.
After following the online process, I put my £500,000 pension into the loan and applied for the full tax-free lump sum of £125,000 available on 3 November.
After this I received an email from Hargreaves Lansdown saying that due to them being busy (probably people like me trying to get lump sums before the Budget) this could take up to 20 working days.
If the Chancellor makes a change to the lump sum limit in the Budget, will it be okay and will I be protected against this as I started the process on 3 November?
Tanya Jefferies from This is Money answers: Speculation was rife that the rules on pension tax-free cash would be tightened in the Budget on 26 November.
Recent reports suggest this issue is off the table but there may be changes to salary sacrifice, a popular way to boost pensions and save on National Insurance.
People over 55 can receive 25 per cent of their pension tax-free, up to a limit of £268,275. Withdrawals are continuing apace, according to pension companies and financial advisors.
Pension tax-free cash: a valuable advantage of accessing some savings in retirement
For some people, getting cash can work, especially if they plan to do so within the next year and want to spend the money for a specific purpose.
For others, withdrawing large sums of money may backfire because tax-free withdrawals are irreversible and they may miss out on future investment growth by transferring funds from their retirement fund.
Pensions experts have raised alarm about making big financial decisions based on rumors about the Budget.
Now back to your situation, if your application hasn’t been processed yet by November 26, what happens may depend on what exactly Rachel Reeves announces that day – of course, we don’t know that yet.
That’s the gist of Hargreaves Lansdown’s response to you below.
To be fair, he cannot predict or control the Chancellor’s future changes to the rules. Like all other providers will have to implement these for their customers.
But there are a few reasons why you shouldn’t worry unnecessarily at this stage.
Firstly, Hargreaves may very well be able to commit the tax-free lump sum before the Budget. He told me he had increased the timeframes for such requests from 15 to 20 business days and made this clear to clients before contacting them.
But it is trying to complete as many requests as possible by increasing overtime and pulling staff from other teams to cover the workload.
Secondly, just like last year, nothing may change and therefore it will not matter if you get your money a few days after the Budget.
Third, if the Government decides to tighten the rules, precedent suggests it will introduce some form of stopgap protection.
Former Pensions Minister Steve Webb points this out in a recent column asking This is Money reader whether tax-free cash deductions could be made immediately on budget day.
Webb also says that removing pension tax-free cash – or simply limiting the amount you can receive – would cause such public uproar that the Chancellor is unlikely to do so.
It is worth repeating that the decision to receive tax-free cash is irreversible.
Hargreaves’ comment below echoes warnings on this issue across the pensions industry, following twin announcements issued by the Financial Conduct Authority and HMRC on tax-free cash write-off rules.
The FCA has said there is no ‘right to cancel’ tax-free cash withdrawals, but pension providers can voluntarily offer the option to customers if they wish.
And HMRC have confirmed that if you cancel there will be no tax consequences reversible; so the withdrawal, even if resolved, would still count against someone’s tax-free lump sum limit of £268,275.
People should also be aware that you could be breaking pension recycling rules and face hefty penalties if you later try to put tax-free money back into your pension as there are no changes in the Budget.
As explained above, speculation that Reeves would reduce the cap on tax-free lump sums from the current £268,275 has led to a rise in demands for cash from savers, according to firms that do business with them.
For example, in recent days asset manager Netwealth told us it had seen a 143 per cent increase in tax-free cash withdrawals between the end of June 2024 and the end of last month, just before the election.
Netwealth says it does not have a backlog of processing claims, but this is a different kind of business that will not deal with the kind of volumes Hargreaves is likely to be dealing with ahead of the Budget.
Meanwhile, some savers are withdrawing cash to give to family members following last year’s announcement that unspent pensions would be liable. inheritance tax From April 2027.
If you donate the money and survive for seven years, this generally falls outside the inheritance tax net. Experts say you need to balance this decision carefully to avoid hurting your own retirement.
Finally, it’s worth emphasizing to anyone under 55 reading this that you will face punitive tax penalties if you withdraw your retirement early – with rare exceptions if you are terminally ill, for example – so be wary of any attempts to encourage you to take this potentially devastating action.
No legitimate company will help you do this; only so-called ‘pension release’ scammers try to plunder your savings. Even if you lose your entire pension to fraud, HMRC will still impose heavy tax on you.
Helen Morrissey, head of pensions analysis at Hargreaves Lansdown, answers: The decision to receive tax-free cash should be part of a long-term plan and it is vital that people consider their options carefully.
While it may be OK for some to take it, doing so as a knee-jerk reaction to speculation risks long-term harm to retirement planning, including tax expenses and lost investment growth.
It is also worth mentioning that the decision to receive tax-free cash cannot be reversed if no announcement is made; This is a move that has long-term consequences for people’s retirement plans.
Consideration of an application not processed before the budget will depend on the detail in any potential announcement.
We also hope that if cuts in appropriations are announced, protections or transition periods will be put in place.
We’ll have to wait for details of any possible announcement to provide more certainty, so for now it’s a thing, sit back and don’t do anything you might regret later.
Are you experiencing a delay in receiving your lump sum payment? Contact: editor@thisismoney.co.uk
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