Savers have been racing to pull cash from their pension funds amid growing fears of a Labour tax raid on retirement pots, the boss of a leading investment platform has warned.
Chancellor Rachel Reeves is said to be considering a cut in the cap on tax-free lump sum withdrawals in her Budget later this month.
That is despite warnings from the industry that meddling with the sector risks putting people off from saving towards their retirement.
AJ Bell chief executive Michael Summersgill yesterday said speculation about the Budget has created ‘unhelpful uncertainty’.
Budget fears: Chancellor Rachel Reeves (pictured) is said to be considering a cut in the cap on tax-free lump sum withdrawals in her Budget later this month
Separately, rival investment managers St James’s Place and Rathbones have seen their customers react to anxiety about what the Chancellor may do, with some worried about a potential increase in capital gains tax (CGT).
Summersgill said: ‘Pensions are the primary retirement savings vehicle in the UK and customers are unsurprisingly sensitive to changes in their tax treatment.
‘Amid increased press coverage ahead of the Budget [on October 30], we have seen a noticeable change in both customer contributions to pensions and tax-free cash withdrawals.’
AJ Bell reported, however, that despite the uncertainty, it had seen net inflows of £6.1billion in the year to September, up 45 per cent on the prior year.
Under current rules, savers can withdraw up to 25 per cent of their pension as a tax-free lump sum when they reach the age of 55, up to a maximum of £268,275.
Reeves has been urged by the Institute for Fiscal Studies (IFS), a prominent think-tank, to reduce that limit to £100,000, raising £2billion.
Speculation is rife that the Chancellor is seriously weighing up that option as Labour has ruled out increases in income tax, corporation tax and VAT.
Meanwhile, Reeves is also reported to be planning an increase in the CGT rate applied to profits made on share sales.
And she is said to be looking at increasing employer national insurance contributions, provoking a business backlash.
St James’s Place chief executive Mark FitzPatrick yesterday said: ‘There continues to be uncertainty in the outlook for consumers, savers and investors.’
Rathbones said it had also been affected by ‘uncertainty around the Budget’. A spokesman said: ‘We have had considerable enquiries ahead of it on a number of points, including pensions and CGT.
‘We are also having conversations with clients where they have uncrystallised gains in their portfolios and the extent to which they should consider their appetite to crystallise gains ahead of the Budget.’
Reeves is said to have decided against a separate raid on pensions which could have seen her scrap tax relief on pensions contributions for higher rate earners.
But experts have lined up to warn the Chancellor to tread carefully regarding any changes that could deter retirement savings – at a time when many are not putting aside as much as they need to enjoy the lifestyle they would like to enjoy.
Amanda Blanc, chief executive of insurance giant Aviva, has urged Reeves to consider the ‘long-term impact’ of any reforms.
And last month, Antonio Simoes, chief executive of Legal & General, told The Mail on Sunday: ‘We need people to be investing more for their retirement and if you keep on changing the incentives there’s no stability.’
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