Pension savers could be slapped with 'whole host of taxes' ahead of Reeves Budget
Finance experts are warning of the potential tax consequences when it comes to pension withdrawals
PA
Pension savers are being urged not to make any rash decisions ahead of this month's Autumn Budget as they could be slapped with a "whole host of taxes".
Chancellor Rachel Reeves is preparing to outline the new Labour Government's fiscal agenda on October 30 with many analysts predicting reform to the tax liability of peoples' retirement savings.
Specifically, economists are predicting the 25 per cent tax-free withdrawal attached to pensions could be reduced or overhauled.
Under current rules, Britons are able to take out a quarter of their pension pot without having to pay a charge to HM Revenue and Customs (HMRC).
Earlier this month, financial advisors reported that clients were reaching out to them to enquire about removing money from their retirement savings ahead of any changes.
However, Britons are being warned of the potential impact of withdrawing money from their pot before the end of the month.
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Pension savers are anxiously waiting to see what will be included in the Chancellor's Budget
GETTYHelen Morrisey, the head of Retirement Analysis at Hargreaves Lansdown, broke down what is potentially at stake for millions.
She said: "We’ve seen tax-free cash tinkered with before – it was reduced to a maximum of £268,275 by the last Government. This has prompted speculation that it would be eroded further in future.
"These rumours haven’t helped even people whose tax-free cash entitlement is well below the limit from wondering what the future holds and potentially making decisions they might come to regret.
"Taking money out of a pension now might deprive it of future investment growth and leave it subject to a whole host of taxes like inheritance, capital gains and dividend tax."
When pension withdrawals are taxed, savers are charged at the highest possible rate. Depending on the amount being withdrawn, some people could be pulled into higher brackets when trying to access any pension income.
It should be noted that retirement savers will need to be aware of HMRC's rules, especially surrounding inheritance tax (IHT)
For example, any cash that is withdrawn and not spent before the saver passes would form part of their estate and could be liable for the levy.
Morrisey highlighted that savers may attempt reinvesting surplus tax-free cash they have withdrawn into their Self Invested Personal Pension (SIPP).
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Rachel Reeves has been urged to stay away from pension savings in her October Budget PAIf carried out, savers could likely fall foul of the tax man's recycling rules and incur a sizable tax fine.
"Even if the money is put in a bank account there’s a risk its purchasing power is eroded over time by low interest rates or inflation," she added.
"Ongoing speculation about potential changes to such a fundamental part of the system is hugely damaging. People need certainty to make long-term plans, and they just don’t have that right now.
"The sooner changes like restricting tax-free cash can be ruled out, the more people can focus on the long term again."
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