It comes as the Chancellor faces calls to limit the amount of tax-free cash that savers can withdraw from their pensions, a move which could raise £2bn for the Treasury….reports Asian Lite News
“Petrified” savers are pulling money out of their pensions early amid fears of Rachel Reeves’s possible tax raid, wealth advisers have warned.
Steven Levin, chief executive of wealth manager Quilter, has sent a letter to the Treasury claiming panic over this month’s Budget had prompted clients to take “knee-jerk decisions” that could jeopardise their financial security.
He said: “We are witnessing more clients considering whether to withdraw their pension tax-free cash prematurely. The knock-on uncertainty around changes to pension tax reliefs, tax-free cash and possible amendments to pension contributions is causing anxiety and confusion for those trying to plan their financial futures.”
The letter added: “A prompt statement from the Treasury, advising against changes to pension arrangements pre-Budget, would be highly beneficial.”
It comes as the Chancellor faces calls to limit the amount of tax-free cash that savers can withdraw from their pensions, a move which could raise £2bn for the Treasury.
Current rules allow savers aged 55 and over to withdraw 25pc of any pension in a tax-free lump sum, up to a maximum of £286,275.
The Institute for Fiscal Studies (IFS) this month urged Ms Reeves to reduce the maximum to £100,000, which would affect about one in five retirees.
Wealth managers have warned that changes to tax-free withdrawals would be destabilising for those in their late 50s and early 60s who have already earmarked funds in their retirement plans, such as paying off their mortgage.
Many are advising pension savers to avoid making hasty withdrawals, especially if they are planning to redirect the tax-free cash to a bank account with lower returns.
Jason Hollands, of wealth manager Evelyn Partner, said: “More customers are getting in touch to ask about withdrawing money early. This has been fuelled by think tanks, such as the IFS, saying the lump sum should be slashed to £100,000.
“This has petrified some people who might have been banking on tax-free cash to clear mortgages or reduce debt in the next few years. The Treasury says it can’t comment on fiscal plans ahead of the Budget, which is understandable. But it’s common for ‘sources close to Treasury’ to dampen down worries if it’s having an adverse impact. The sooner they set out the direction of travel the better. People need more clarity.”
Tom Selby, of wealth manager AJ Bell, said: “When we commit money to a pension the deal is that we sacrifice spending power today in order to provide for ourselves in the future, with certain tax breaks on offer to sweeten the deal. Even the perception that the Government might renege on the terms of the deal risks people taking actions which may not be in their best interest.”
He added that cutting tax-free cash was an “extremely unlikely” move, but the Chancellor needed to confirm that speculation is unfounded to “nip the issue in the bud”.
ALSO READ: Migrant arrivals hit highest daily total this year
