Pensions Budget tax raid big update as Treasury issues response | Personal Finance | Finance
The government has officially responded to a campaign calling for people’s pensions to be protected from potential tax raids. There are concerns that Chancellor Rachel Reeves may target lump sums of tax-free cash from pensions in her November 26 budget, prompting savers to rush to withdraw the money.
A petition on the parliament’s website calls on Ms Reeves to establish a Pension Tax Lock to help protect retirement savings and incentives. Support has grown and after reaching 10,000 signatures it has now received a formal response from the Treasury and could even spark a debate in the House of Commons if it gets support from 100,000 signatures.
The petition, now signed by 18,628 people, states: “The Chancellor should introduce the Pension Tax Lock: a commitment that he will not reduce the amount people can withdraw from their pensions tax-free or the amount of tax relief given on pension contributions. “We believe this will help ensure that pension savings are protected and people can save with confidence.
“We believe this simple commitment can put an end to the speculation seen at the front of every Budget, which we think erodes confidence in long-term savings and can often lead people to make bad, sometimes irreversible financial decisions.
“We think this will bring zero cost to the Ministry of Finance and allow people to save for retirement with more confidence. We think it can support the government’s dual objectives of ensuring the adequacy of pensions and boosting economic growth.”
Now the Treasury has responded and refused to withdraw on the eve of the Chancellor’s budget on 26 November. He said: “In relation to the proposed ‘pension tax lock’, the Government does not comment on proposed tax changes or tax-related speculation ahead of the Budgets.
“The government recognizes the importance of increasing confidence in retirement savings and is committed to ensuring that future generations of retirees have security in retirement. That is why, just days after taking office, the government announced a landmark two-stage review of the pension system.”
The Treasury added that they aim to help people save as much as possible for retirement: “The government wants to encourage retirement saving to ensure people have an income or funds to draw on throughout retirement. The government is committed to supporting savers at all stages of life. Therefore, for the majority of savers, pension contributions made from income earned throughout working life are tax-free.”
“This is known as ‘pension tax relief’. This relief is provided at the individual’s marginal rate. For example, contributions from a basic rate (20 per cent) taxpayer who contributes to a registered pension scheme in 2025/26 receive tax relief of 20 per cent. This makes pension tax relief one of the most expensive reductions in the personal tax system, costing £78bn in 2023/24.”
Full answer can be read here.
Financial experts have expressed concern about the number of people withdrawing money from their pensions for fear of a raid on the budget. Investment platform AJ Bell has called on Chancellor Rachel Reeves to publicly oppose the changes to prevent people from making rash decisions that could damage their retirement finances.
Mark Cunningham, a partner at accountancy firm Blick Rothenberg, commented: “Speculation is rising again as the next Budget approaches. If no changes are planned, it could be seen as irresponsible for the Chancellor not to confirm this in advance, given previous history and the impact on those approaching retirement.”
Pensions experts have issued warnings to savers in light of the latest clarifications published by the Financial Conduct Authority and HMRC on tax-free cash cancellation rules. An expert has called on Chancellor Rachel Reeves to consider any changes now to prevent people making hasty decisions that could negatively impact their retirement finances.
Leading investment platform AJ Bell echoed this sentiment, urging the Chancellor to take a stand against the changes.
Rachel Vahey, head of public policy at AJ Bell, called on the Chancellor to publicly rule out any changes to tax-free cash to quell speculation. He said: “The Chancellor needs to publicly rule out changes to tax-free cash to end speculation. Doing so would ease uncertainty and show the government is on the side of workers saving for the future.”
Last year there were expectations that the government might further limit the 25 per cent tax-free cash that can be taken from pensions (currently capped at £268,275) or reduce the high-rate tax relief on pension contributions. However, none of these changes came into force, although pension providers reported an increase in the number of people accessing pension funds ahead of the Budget.
Marianna Hunt, of pensions provider Fidelity International, warned of the potential negative impact this could have on individuals’ future financial planning. He stated: “This may have negative consequences in terms of future financial planning for those individuals involved. This highlights the dangers of making financial decisions based on speculation without seeking advice or guidance about your options.”
To view the Petition and Treasury answer click here.
