City warns Chancellor against ‘disastrous’ pension tax raid

City bosses have warned Rachel Reeves against a damaging pension tax raid as she struggles to make her budget figures add up.

Senior figures including St James’s Place chief executives AJ Bell and Quilter told the Mail that an attack on superannuation funds would be “disastrous” for savers.

They said uncertainty over what the Chancellor is planning is already causing “panic” among worried savers who are making “knee-jerk decisions that could jeopardize long-term financial security”.

Proposals to reduce the lump sum that workers can withdraw from their pension funds tax-free are causing particular alarm.

Michael Summersgill, chief executive of investment platform AJ Bell, said: “Rumors about potential cuts to tax-free cash are hugely damaging and risk fundamentally undermining confidence among millions of people saving for retirement.”

He warned that such a move would be “disastrous.”

Reeves is understood to have abandoned plans to cut tax relief on higher rate taxpayers’ pension contributions. But Treasury officials are considering reducing the tax exemption, which would devastate the retirement plans of those affected.

Most savers can receive 25% of their pension pot tax-free once they turn 55, up to a maximum of £268,275. But this could be reduced to £100,000 in the Budget in a bid to raise around £2bn for the taxman.

Steven Levin, chief executive of wealth manager Quilter, said: “We are seeing more and more clients considering taking tax-free cash out of their pensions prematurely.” This reaction arises from fear of a reduction in limits and highlights the urgent need for clarity from the Government.

“The current uncertainty is driving knee-jerk decisions that could jeopardize long-term financial security.”

Her comments were echoed by Mark FitzPatrick, chief executive of St James’s Place, who said: ‘Anxiety about this issue is growing. We consider this to be of concern to consumers, because once tax-free cash is withdrawn from a pension, it often means that potential pension-related benefits are lost.’

Other proposals being considered include forcing companies to pay national insurance on money they contribute to pensions on behalf of workers, something critics say will result in lower wages and lower pension contributions for workers. employers. The Chancellor is also looking to impose an inheritance tax on pension funds as she struggles to raise money to pay for her unfunded spending promises.

Jeff Prestridge highlighted the issue in the Mail this week and last night critics urged Reeves to clarify his plans.

FitzPatrick said: “Stability, transparency and clarity are key for UK consumers to plan for their future, and we urge the Chancellor to provide guarantees on pension taxation in the Budget.”

Helen Morrissey, head of retirement research at Hargreaves Lansdown, said: “Pensions are a long-term game and people need certainty from the system if they are to plan with confidence.”

Noel Butwell, chief executive of Abrdn Adviser, said: “A pension tax grab is no way to encourage a culture of savings, and even less so when the government is trying to boost investment in pensions.”

He warned that reducing the tax-free lump sum would “only undermine consumer confidence in pensions at a time when more people need to take responsibility for their own financial future”.

Craig Rickman, pensions expert at Interactive Investor, said: “People have saved a lot for retirement knowing they can withdraw a certain amount from their pension tax-free.” If the decision is made to reduce this figure, it is understandable that many will feel that the rug has been pulled out from under them.’