Pensioners warned they could be hammered by 70% HMRC penalty

Pension savers considering juggling their nest eggs prior to Rachel Reeves’ anticipated tax shake-up in the Budget might face a severe sting in the wallet.

Industry specialists are warning that the Chancellor may eye changes to pension tax-free allowances, which could include chopping the sum you can withdraw from your pension pot without paying tax. Currently, you’re at liberty to extract 25 percent of your pension pot tax-free, capped at £268,275.

However, individuals aiming to reposition their pension wealth to dodge higher tax rates may confront an extortionate 70 percent tax hit. Should an individual seek to ‘recycle’ their tax-free lump by investing it into another pension plan and breach certain limits, they risk triggering a series of punitive charges.

Helen Morrissey is a pension expert at Hargreaves Lansdown. She has sounded the alarm over the dangers of prematurely withdrawing funds from your pension savings.   

Ms Morrissey said: “Ripping money out of a pension now potentially deprives it of future investment growth and could leave it subject to a whole host of taxes that it otherwise might not be, such as inheritance, capital gains, dividend and income tax. We could also see people try to reinvest surplus tax-free cash they’ve taken back into their SIPP and potentially fall foul of recycling rules that clobber them with a fine.”

The penalties for skirting the regulations could be harsh, reports the Daily Star. Those who purposefully set out to ‘recycle’ this cash and break these boundaries might receive a hefty invoice courtesy of HMRC.

Ms Morrissey issued a stark caution to those considering transferring their pension savings into regular bank accounts, warning: “Even if the money is put in a bank account, there is a huge risk its purchasing power is eroded over time by falling interest rates.”

The specialist emphasised the need for clear communication regarding pension tax policy changes, stating: “This 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.”

She urged for prompt action, asserting: “The sooner changes such as raiding tax-free cash, can be ruled out, the more people can focus on the long term again.”