Rachel Reeves is coming under mounting pressure to rule out a ‘knee-jerk’ raid on pension lump sums before next month’s Budget.
Rumors are circulating that the Chancellor might lower the maximum tax-free withdrawal limit for retirees, causing some savers to consider withdrawing their funds earlier than planned.
But the panicked withdrawals may prove costly as the money removed from pension funds will, once taken out, no longer earn tax-free returns.
Two former pensions ministers, Ros Altmann and Steve Webb, have called on the Government to end the uncertainty.
Baroness Altmann claimed cutting the threshold would be a ‘hit the rich’ policy that mainly harms the middle-class.
And broker AJ Bell has launched a parliamentary petition urging the Government to commit to tax-free cash in its current form.
The petition had been backed by more than 1,000 signatures yesterday. Should it reach 10,000, the Government would be obliged to respond.
And if it hits 100,000, the petition will be considered for a debate in Parliament.
Speculation is mounting that the Chancellor, Rachel Reeves, may reduce the maximum amount savers can withdraw tax-free from their retirement funds – prompting some to pull cash out now
Savers are currently allowed to withdraw 25 per cent of their pension tax free, up to a maximum level of £268,275, from the age of 55.
Some think that will be a tempting target for a raid by the Chancellor as she bids to fill an estimated £30 billion black hole.
Fear of a pensions tax raid also mounted ahead of last year’s Budget, prompting an avalanche of withdrawals despite the tax changes not materialising.
A poll last week from wealth manager Rathbones found it was one of the biggest regrets among financial decisions made by savers ahead of last year’s Budget.
With withdrawals rising again, Baroness Altmann yesterday told the Daily Mail: ‘It is so important that the Chancellor does not make knee-jerk changes to pension rules.
Just the worries about tax-free cash being under threat have already led so many people, who don’t need the money yet, to take cash from their pension fund just in case the Government moves the goalposts.
‘That means they will lose the chance of earning higher tax-free returns over time in their pension.’
‘Once the money has gone from their pension fund, they will find it almost impossible to put it back again.’
‘This won’t bring extra revenue for the Chancellor in the near term and seems more like ideological ‘hit the rich’ policies that will be most damaging to the middle class.’
And Steve Webb, who is now partner at pension consultants LCP, added: ‘Pensions are a long-term business and constant short-term speculation can be very damaging.
‘The Government was willing to commit in its manifesto to various promises for the lifetime of this Parliament, so there is no reason why it should not commit to leaving pension tax relief alone at least until the next election.’
Critics of the policy argue it would also be unfair to savers.
Tom Selby, of AJ Bell, said: ‘When people save in a pension, they enter into a tax pact with the Government.
‘Take-home pay today is sacrificed for the long-term, on the proviso that it will instead be taxed on withdrawal and comes with the added benefit of a 25 per cent tax-free element.
‘That is the foundation upon which the retirement plans of millions of Britons are built and requires a firm commitment to stability from the Government, matching the long-term financial decisions of savers making preparations for retirement.’
‘Individuals contribute to a pension in good faith and should not be subject to endless speculation.’
A Treasury spokesman said: ‘We do not comment on speculation around tax changes, but remain committed to encouraging pension saving.’
