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Savers have been rushing to withdraw cash from their pension funds amid growing fears of a Labor tax raid on superannuation funds, the head of a major investment platform has warned.
Chancellor Rachel Reeves is said to be considering a cut to the limit on tax-free lump sum withdrawals in her budget later this month.
This is despite industry warnings that meddling in the sector risks deterring people from saving for their retirement.
AJ Bell chief executive Michael Summersgill said yesterday that budget speculation had created “unhelpful uncertainty”.
Budget fears: Chancellor Rachel Reeves (pictured) is said to be considering a cut to the limit on tax-free lump sum withdrawals in her budget later this month.
Elsewhere, rival investment managers St James’s Place and Rathbones have seen their clients react to anxiety over what the Chancellor may do, with some worried about a possible increase in capital gains tax (CGT).
Summersgill said: ‘Pensions are the main retirement savings vehicle in the UK and, unsurprisingly, clients are sensitive to changes to their tax treatment.
“Amid increased press coverage ahead of the Budget (on October 30), we have seen a notable shift in both client pension contributions and tax-free cash withdrawals.”
AJ Bell reported, however, that despite the uncertainty, it had seen net inflows of £6.1bn in the year to September, up 45 per cent on the previous year.
Under current rules, savers can withdraw up to 25 per cent of their pension as a tax-free lump sum when they turn 55, up to a maximum of £268,275.
The Institute for Fiscal Studies (IFS), a leading think tank, has urged Reeves to reduce that limit to £100,000, raising £2 billion.
Speculation is rife that the Chancellor is seriously weighing that option, with Labor having 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 from the sale of shares.
And it is said to be considering increasing employers’ national insurance contributions, prompting a business backlash.
St James’s Place chief executive Mark FitzPatrick said yesterday: “There remains uncertainty in the outlook for consumers, savers and investors.”
Rathbones said he had also been affected by “uncertainty around the budget”. A spokesperson said: “We have had many inquiries ahead of us on a number of points including pensions and CGT.
“We are also holding discussions with clients who have uncrystallized profits in their portfolios and the extent to which they should consider their appetite for crystallizing profits ahead of the Budget.”
Reeves is said to have decided against a separate raid on pensions that could have led to her scrapping tax relief on pension contributions for higher earners.
But experts have lined up to warn the Chancellor to tread carefully over any changes that could deter retirement savings, at a time when many are not saving 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 reform.
And last month, Antonio Simoes, chief executive of Legal & General, told The Mail on Sunday: “We need people to invest more for their retirement and if you keep changing the incentives there is no stability.”
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