Fears over Budget fears causing ‘erratic behaviour’ among retirees | UK | News
Brits approaching retirement age are displaying “ambivalent behaviour” due to lack of clarity on pension changes in the November Budget. Rachel Reeves will announce her much-anticipated Budget on November 26, but those approaching retirement are making changes to their pensions and withdrawing money ahead of the financial announcement. Brits may be “jeopardizing” their savings and “sacrificing future growth” due to current uncertainty, experts say.
Tomm Adams, a partner at audit, tax and business consultancy Blick Rothenberg, said: “A lack of clarity on the direction the budget will take on pensions is leading to erratic behavior among those still working but below the normal retirement age. People aged 55-65 are putting their potentially six-figure retirement savings at risk due to fears that their tax-free lump sum will fall.”
He added: “This, together with the fact that inheritance tax will also apply to unused defined contribution pension funds from April 2027, leads to an increase in the number of people withdrawing the 25% lump sum.”
Mr Adams warned that withdrawals could be “unnecessary” and could also mean “future growth is compromised and the ability to save further in a tax-efficient manner is reduced”.
“The tax consequences they face are irreversible once that can of worms is opened,” he said.
The November Budget also reportedly includes a tax-free lump sum cap, which will reduce the current £268,275 allowance, experts say.
Withdrawals increased by 35.9% between 2023/24 and 2024/25, according to a report from the FCA. Funds were withdrawn from 99,243 accounts in the six months to September 2024; This figure is up from 84,132 in the previous six months.
Former pensions minister Steve Webb, now a partner at consultancy LCP, has previously said pension income data reveals “fears about a reduction in tax-free cash limits” and the impact of “uncertainty” around pensions on the market. “These figures graphically illustrate how uncertainty around pensions and tax can move the market,” he told Citywire New Model Advisor.
Mr Webb said it was “deeply disappointing” that Britons’ financial behavior was driven by “uncertainty around public policy”.
ONS figures show that the average person aged 55 to 64 has £137,800 in private pension savings. You can collect your pension from the age of 55 and your state pension from the age of 66 – the state pension age will gradually rise to 67 from next year.
