Ahead of the Autumn Statement, rumours are circulating that cuts to pension tax-free cash are being considered.
This follows a survey from AJ Bell that found that 99% of advisers have received fearful queries from savers about tax and pensions.
During September, there was a 59% increase in customer contributions to pensions in the same period last year. There were also a third (32%) more people accessing their fund than in September 2023.
From April 2023 to March 2024, 885,455 people dipped into their pension pot for the first time as UK residents battled a spike in prices and high mortgage rates.
The first Autumn Statement from the Labour Government will be announced on 30 October, and with Winter Fuel Payments becoming means-tested, pensioners and pension contributors need some clarity, according to Michael Summersgill, AJ Bell’s chief executive.
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‘Confidence is being chipped away’
Summersgill said: “Constant rumour and speculation about the future of retirement tax incentives – primarily the tax treatment of pension contributions and tax-free cash on retirement – are hugely damaging. People are taking financial decisions in part based on pre-Budget speculation, and it chips away at people’s confidence in pensions generally.”
He added: “The Chancellor has an opportunity to nip this in the bud by using her inaugural Budget to publicly commit to a pact on pension taxation. A clear promise to deliver tax stability on pensions for at least a decade would provide much-needed certainty to savers across the country.
“When we commit money to a pension, the deal is that we sacrifice spending power today so that we can provide for ourselves later in life. Even the perception that Government might renege on the terms of the deal risks people taking actions [that] may not be in their best interest.”
He continued: “Rumours about the future of tax-free cash, one of the best understood and most valued benefits of pensions, are particularly problematic.
“Taking your tax-free cash is an irreversible decision and, assuming the Chancellor doesn’t pursue a disastrous raid on tax-free cash, those people may find they’re in a worse financial position long term. A concrete pension tax pact would allow hard-working savers and retirees to focus on their long-term goals, rather than being knocked off course by speculation of future changes.”