Pension tax fears cause panic, says Abrdn

A top fund manager has urged Rachel Reeves to rule out a tax raid on pensions, saying it is “no way to encourage a savings culture”.

Abrdn said speculation was causing “panic” among savers who were rushing to take advantage of current rules on lump sum withdrawals.

And Abrdn’s new chief executive, Jason Windsor, speaking as the company separately released a trading update, urged Labor to avoid discouraging investors with broader policies in next week’s Budget.

Rumors suggest Reeves could change the current policy under which pension savers who reach the age of 55 can withdraw 25% of their tax value into the pension fund, up to a maximum of £268,275.

The Chancellor is said to be considering a cut to £100,000 as she seeks to close a £40bn black hole in public finances in the Budget.

It comes amid outrage over speculation Mr Reeves will impose national insurance on private sector employers’ pension contributions but spare the public sector.

Noel Butwell, chief executive of Abrdn’s Adviser platform, said a change to the lump sum rule would be unhelpful at a time when the Government was trying to boost investment in pensions.

He said: ‘A pension tax hoarding is no way to encourage a savings culture. Speculation is causing panic, especially among those without a financial advisor who are rushing to take advantage of the tax-free lump sum.’

Butwell said the move would “only serve to undermine confidence in pensions at a time when more people need to take responsibility for their financial future”.

“The worst outcome would be if people opted out of pensions and long-term savings,” he said.

“We encourage the government to now clarify whether rumors of reducing the tax-free lump sum are being considered and whether this will protect allowances already accrued.”

Abrdán joins rival St James’s Place in warning against tax raid. And AJ Bell, another investment platform, has also reported the trend of savers rushing to cash out while they can.

It came as Abrdn issued a gloomy trading update which saw its shares fall 11 per cent, or 18.4p, to 145.55p. The update revealed that the beleaguered company suffered £3.1bn of capital outflows in the third quarter.

That was far less than the £6.7bn exodus in the same period last year, but worse than analysts expected. Windsor admitted that the performance “wasn’t where it needed to be.”

As for the budget, he warned Reeves not to be too harsh in imposing money on investors.

“The UK needs to become an attractive place for investment,” he said. “You can be absolutely sure that the investment will follow.”