Have you made changes to your pension ahead of the Budget? Email money@telegraph.co.uk.
Savers are rushing to stash money in their pensions ahead of Rachel Reeves’ Budget over fears of a Labour tax raid.
However, financial advisers are also concerned savers are hastily pulling money out of their pensions to avoid possible tax charges – with one client losing £270,000 from the value of their retirement fund.
Pensioners who are concerned that their tax breaks could be slashed on October 30 have increased their contributions to Self-Invested Personal Pensions (Sipps) tenfold, according to one investment service.
Those worried about changes to the tax-free lump sum, which currently allows those retiring to take a quarter of their cash up to £268,275 in one go, meant that the number of withdrawal requests has doubled compared to last year.
Requests jumped by 75pc over the summer months, as rumours about upcoming changes abounded.
It comes as wealth manager Quilter last week wrote the Treasury urging it to allay fears of a pension tax raid – saying savers were making costly “knee-jerk” decisions.
Chancellor Rachel Reeves, who has already removed the winter fuel payment, worth between £200 and £300, from more than 10 million pensioners, is feared to be considering raiding pensions in a number of ways.
The Telegraph revealed in July that she was speaking to civil servants about radically reforming the tax relief on pension contributions, by introducing a 30pc flat rate. Currently, savers get tax relief at their income tax rate.
The policy would have seen the savings of top rate taxpayers lose as much as 15pc of additional tax relief.
Pressure from Labour’s union paymasters is believed to have played a role in why the policy will now likely not feature in the Budget later this month.
But savers with concerns about limiting the size of the 25pc tax-free lump sum, or cuts to the amount that can be stashed away each year, have been rushing to take advantage of the current rules.
There are also concerns that savings in defined contribution (DC) pensions could be brought into inheritance tax (IHT) rules. Currently, pension pots are not liable for inheritance tax, although the beneficiaries of those who die over the age of 75 pay income tax on the money.
Alice Haine, the online investment service Bestinvest which revealed the surge in pension saving, said: “Rumours that pensions tax relief was in the Chancellor’s sights, with the potential a flat rate of 30pc would be imposed, had a dramatic effect on saving behaviour with clients choosing to funnel large sums into their SIPPs to get ahead of any changes.”
But financial experts warned that savers taking evasive action without proper advice risked losing significant chunks of their pensions.
Financial adviser Claire Sweet said that one worried client retired early and took the maximum tax-free lump sum because he was worried that it would be scrapped.
As a result of the early withdrawal, his final annual retirement income will be £11,366 less than it should have been – more than £270,000 over 24 years.
She said: “In the last few months I’ve had several worried clients that I’ve needed to reassure that they are not going to be affected by any proposed changes, not that anyone including the experts really knows what will happen on Oct 30.”
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