Savings alert: Britons warned Rachel Reeves to be 'tempted' to come back for extra pensions tax raid
Britons can usually take up to 25 per cent of the amount built up in any pension as a tax-free lump sum
GETTY/GB NEWS
Pension savers are warned Chancellor Rachel Reeves could be tempted to impose a further tax raid on pensions, putting retirement funds at further risk.
Although Reeves avoided major changes in the Budget, such as reducing the lump sum allowance or cutting tax relief, Baroness Altmann cautioned that the Chancellor is likely to return for more in upcoming Budgets.
Altmann said: "I cannot imagine the Chancellor not interfering with pensions again in this Parliament.
"The temptation to damage the pension funds of those who have money set aside is too great to rely on any such hopes."
The former minister's comments follow AJ Bell's call for a 'Pensions Tax Lock' to provide certainty for savers and prevent hasty decisions based on pre-Budget speculation.
From April 6, 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for Inheritance Tax purposes
GETTYThere were fears the Chancellor would limit the 25 per cent tax-free cash withdrawal pension savers benefit from in retirement.
Since the speculation, people raced to pull cash from their pensions in the run-up to the Budget to protect it from a cap they worried was about to be imposed.
AJ Bell, investment platform, reported a surge in investor activity due to pre-Budget speculation. The company saw increased pension contributions and tax-free cash withdrawals as savers reacted to rumours of potential changes.
Michael Summersgill, Chief executive at AJ Bell said: [The changes] present significant decisions for individual customers.
“We have therefore made representations to the Treasury calling for a commitment to a pension tax lock in the Budget, guaranteeing stability in key pension tax legislation for at least this parliament.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown explained that those who withdrew money out of fear and now regret it, should speak to their provider about whether they can reverse their instruction.
She said: "Some providers will offer a cooling off period, but it all depends on when and how you took your tax-free cash, so you will need to check with them.
"If you think you can get around the issue by reinvesting it into a pension such as a SIPP, then you need to be careful not to fall foul of recycling rules that could land you with a nasty tax charge."
The Institute for Fiscal Studies (IFS) has criticised Reeves for allowing pension-related rumours to circulate before the Budget.
Paul Johnson, IFS director said: "Reeves may want to reflect on the damage done by having allowed various rumours to circulate for so long."
Johnson suggested that if there was never any intention to alter the income tax treatment of pensions, the Chancellor should have made this clear earlier as many are left with their tax free lump sums, and are not sure what to do with it.
Industry experts argue that clearer communication from the Treasury could have prevented "unnecessary anxiety and hasty financial decisions" among savers.
With Altmann's fears Reeves could come back again for another pensions tax raid, savers may continue to withdraw from their pensions.
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By implementing a 'Pensions Tax Lock' , savers could be provided with certainty ahead of retirement. This proposed measure would rule out further changes to pension taxation for a set period.
Altmann expressed scepticism about the likelihood of such a lock being implemented.
She told The Mail: "There will certainly be rumours aplenty of significant further changes at some stage."
The former pensions minister also criticised recent policy shifts, stating: "The good incentives and behavioural nudges put in by the pension freedoms are now being killed off."
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