The chancellor’s potential tax raid on pensions has triggered a stampede of savers trying to withdraw lump sums as fears heighten.
Britain’s pension industry is understood to be receiving a surge in inquiries about tax-free withdrawals amid concerns Reeves might curb the tax-free sum at a lower amount or slash the proportion pensioners can take.
Standard Life, AJ Bell and Royal London are among the pension giants already being bombarded with requests following “widespread concern”.
Under the current Lump Sum Allowance (LSA), Britons aged 55 can withdraw lump sums of up to 25 per cent tax-free, and to the same amount of £268,275.
However, the tax-free sum could be capped at a lower amount or the proportion pensioners can take could be reduced.
Former pensions minister, Sir Steve Webb warns that the sudden rise in retirees interested in withdrawing lump sums is likely to “put pressure on pension schemes”.
“Not unreasonably, those who are aged 55 or over are tempted to ‘crystallise’ their pensions now to get hold of their 25 per cent tax-free cash, and this surge in interest is likely to have put pressure on pension schemes and pension providers,” he told The Telegraph.
Webb – who is now a partner at consultancy LCP – added that some pension providers may not have the additional employees required “cope with a rush”.
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Tom McPhail, of pensions consultancy the Lang Cat echoes Webb, as he suggests pension providers could face an operational “bottleneck”.
He said: “The Government’s created a context of uncertainty, discomfort and fear around all of this. Restricting the tax-free lump sum is an obvious potential tax raid. It’s quite an easy lever to pull.”
It comes as the Government faces calls to reduce the amount of tax-free cash that savers can withdraw – a change that could generate £2billion for the Treasury.
The Institute for Fiscal Studies (IFS) has urged Reeves to slash the limit to a £100,000 cap on the tax-free lump sum – which would impact one in five pension savers.
Experts are warning that the move could destabilise people in their late 50s and early 60s who have already earmarked funds in their retirement plans.
The tax-free sum could be capped at a lower amount or the proportion pensioners can take could be reduced
PA
According to money experts, a quick withdrawal may not be the best decision – particularly if they are planning to redirect the tax-free cash to a bank account with lower returns.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Ripping this out of your pension now to avoid a tax grab may seem like a good idea, but it’s something you may come to regret.”
Downing Street has already revealed plans to cut winter fuel payments for millions of pensioners, prompting concerns about whether similar measures will be introduced.
A Treasury spokesperson said: “We do not comment on speculation around tax changes outside of fiscal events.”
