Rachel Reeves is coming under mounting pressure to rule out a ‘knee-jerk’ raid on pension lump sums before the Budget, with speculation the Chancellor may reduce the amount savers can withdraw tax-free from their retirement pot
Rachel Reeves is coming under assembly pressure to rule out a ‘knee-jerk’ raid on pension lump sums before next month’s budget.
Speculation has it that the Chancellor may reduce the tax-free withdrawal of maximum amount savings from pension funds, enabling some to withdraw cash now.
But panic withdrawals can be costly because money removed from retirement funds can no longer earn tax-free returns once removed.
Two former pensions ministers, Ros Altmann and Steve Webb, called on the government to end the uncertainty.
Baroness Altmann claimed that cutting the threshold would be a ‘rich rich’ policy that would mostly hurt the middle class.
And broker AJ Bell has launched a parliamentary petition calling on the government to make cash tax-free in its current form.
The petition was supported by more than 1,000 signatures yesterday. If it reached 10,000, the government would have to respond.
And if it hits 100,000, the petition will be considered for a debate in parliament.
Speculation that Chancellor Rachel Reeves may reduce maximum savings that will allow tax-free withdrawals from pension funds – prompting some to withdraw cash now
Savings are currently allowed to deduct 25 per cent of pension tax from age 55, up to a maximum of £268,275.
Some think it would be a tempting target for a raid by the Chancellor as he offers to fill the estimated £30bn black hole.
Fears of a pension tax raid also dogged last year’s budget, leading to an avalanche of withdrawals despite tax changes not coming through.
A survey by wealth manager Rathbones last week found financial decisions made by Guardians ahead of last year’s budget were among the biggest regrets.
As withdrawals rise again, Baroness Altmann told the Daily Mail yesterday: ‘It is so important that the Chancellor does not make knee-jerk changes to pension rules.
Concerns about tax-free cash alone being threatened have led to many people who don’t yet need the money taking cash from their retirement funds if the government moves the goalposts.
‘This means they will lose the chance to earn higher tax-free returns on their pension over time.’
‘Once the money is gone from their pension fund, they will find it almost impossible to put it back in.’
‘This looks like a ‘hit the rich’ policy that will not generate extra revenue for the Chancellor in the near term and will be most harmful to the middle class.
And Steve Webb, now partner at retirement consultants LCP, added: ‘Pension is a long-term business and constant short-term speculation can be very damaging.
‘The government was willing to commit to a variety of promises in its manifesto for the life of this Parliament, so there is no reason why it should not commit to leaving pension tax alone at least until the next election.’
Critics of the policy argue it would also be unfair to guardians.
AJ Bell’s Tom Selby said: ‘When people save from their pension they enter into a tax agreement with the government.
‘Today the home salary is sacrificed in the long run, provided that it instead comes with the added advantage of a 25 per cent tax-free element that will be taxed on withdrawals.
‘It is the foundation on which the retirement plans of millions of Brits are built, requiring a firm commitment from the government to stability and matched by the long-term financial decisions of savers preparing for retirement.’
‘Individuals contribute to a pension in good faith and should not be subject to endless speculation.’
A Treasury spokesman said: ‘We do not comment on speculation about tax changes, but we remain committed to encouraging retirement saving.’
