Rachel Reeves has been urged to rule out a pensions tax raid after ‘startling’ figures revealed that worried savers have been pulling out billions to avoid it.
The ‘unprecedented rush’ to withdraw tax-free cash from retirement funds saw £18.1 billion taken out in the latest financial year, up from £11.2 billion the year before.
It came as speculation swirled before last year’s Budget about a reduction in the tax-free lump sum that can be drawn down when savers reach the age of 55.
There are now fears the punishing changes could be implemented ahead of the next Budget at the end of November.
Experts warned that savers pulling money out prematurely would be damaging and called on the Government to give clearer direction.
Paul Johnson, former director of the Institute for Fiscal Studies (IFS), said ‘kite-flying’ ahead of the Budget ‘makes life impossible for savers’.
Mr Johnson told the Daily Mail: ‘It is clear that the rumours before last year’s Budget led tens of thousands of people to withdraw billions from their pensions before they had intended to.
‘This is damaging for them and for the economy. More rumours ahead of the forthcoming budget will create more uncertainty and will likely lead to more billions being withdrawn prematurely.’
Rachel Reeves has been urged to rule out a pensions tax raid after ‘startling’ figures revealed that worried savers have been pulling out billions to avoid it. Pictured: Chancellor of the Exchequer Rachel Reeves on the steps of number 11 on budget day October 2024
The ‘unprecedented rush’ to withdraw tax-free cash from retirement funds saw £18.1 billion taken out in the latest financial year, up from £11.2 billion the year before
The Daily Mail has been told by a Whitehall source that a raid on pensions lump sums is not ‘currently’ being considered. But a Treasury spokesman said: ‘We do not comment on speculation around changes to future tax outside of fiscal events.’
Pension savers are currently able to withdraw up to 25 per cent of their nest eggs tax free from the age of 55 – up to a maximum of £268,275.
But the lump sums are seen as a tempting target for the Chancellor as she seeks to repair a financial black hole estimated at up to £50 billion.
Fears retirement pots could be at risk have risen since Torsten Bell, a Left-wing former think-tank chief, was made pensions minister this year.
More recently, it emerged he will have a key role in drawing up the next Budget.
That raised alarm as in the past he has made the case for ‘completely reforming’ pensions tax relief and advocated a sharp cut in the tax-free withdrawal threshold to just £40,000.
Figures obtained by wealth manager Evelyn Partners after a Freedom of Information request to the Financial Conduct Authority laid bare the drastic response of savers to the speculation.
It came as speculation swirled before last year’s Budget about a reduction in the tax-free lump sum that can be drawn down when savers reach the age of 55
There are now fears the punishing changes could be implemented ahead of the next Budget at the end of November
They showed the value of withdrawals rose more than 60 per cent, as 211,000 chose to withdraw their lump sums in the 2024/25 tax year, up from 163,500 in the previous year.
Emma Sterland, of Evelyn Partners, said: ‘These are quite startling figures showing that the country’s pension savers have been in an unprecedented rush to take their tax-free lump sums.
‘You can’t help feeling that much of this increase is a slightly panicked dive into pensions sparked by uncertainty over policy change.’
She cautioned that those who rush to take out cash early ‘are taking funds that are growing in a tax-protected environment to one where they could be subject to capital gains, dividend or savings interest taxation’.
Michael Summersgill, of investment platform AJ Bell, said: ‘The Chancellor should resist a short-sighted tax grab from the nation’s long-term savings system.
‘Instead, a public commitment to a pensions tax lock, promising not to tinker with the fundamentals of the pension tax system in this parliament, would deliver confidence for savers.
‘Workers who set money aside decades before retirement, taking responsibility for providing for themselves once they stop working, should not be subject to endless speculation about how their own money may or may not be taxed.’
