Zarah ChoudharyAmid rumours that Chancellor Rachel Reeves is due to scrap plans to reduce the 40% tax relief for higher earners, and Labour’s decision to drop plans to reintroduce a cap on the lifetime allowance on pension savings, experts have warned of the damage being done by ongoing Budget speculation.
Michael Summersgill, chief executive at AJ Bell, warned that speculation over pension tax incentives could be harmful.
He said: “Constant rumour and speculation about the future of retirement tax incentives…are hugely damaging.
“People are taking financial decisions in part based on pre-Budget speculation and it chips away at people’s confidence in pensions generally.”
Summersgill reiterated the importance of stability, and urged the Chancellor to use her first Budget to commit to long-term stability in the pension tax system.
“The Chancellor has an opportunity to nip this in the bud by using her inaugural Budget to publicly commit to a pact on pension taxation.
“A clear promise to deliver tax stability on pensions for at least a decade would provide much-needed certainty to savers across the country.”
Mike Ambery, retirement savings director at Phoenix Group, said: “Changes to income tax relief are a potentially significant revenue raiser but come with two major challenges.
“Firstly, they would be highly complex to implement and secondly, they come with political downsides given their knock-on implications for public sector workers in particular.”
He added: “Pensions are long term by their nature and ideally any changes would be considered as part of the government’s upcoming pension and adequacy review.”
According to AJ Bell, customer contributions to pensions rose 59% in September 2024 compared to the same period in 2023, while the number of customers accessing their tax-free cash increased by 32%.
Summersgill attributed this to growing concerns over potential changes in the upcoming Budget.
He noted that 99% of advisers surveyed by AJ Bell reported dealing with tax and pension queries from clients worried about possible reforms, with many fearing a tax raid on pensions.
Summersgill also emphasised the importance of maintaining tax-free cash entitlements, warning that rumours of cuts to these benefits could lead people to make irreversible financial decisions.
He said: “Rumours about the future of tax-free cash, one of the best understood and most valued benefits of pensions, are particularly problematic.
“Taking your tax-free cash is an irreversible decision and, assuming the Chancellor doesn’t pursue a disastrous raid on tax-free cash, those people may find they’re in a worse financial position long-term.”
AJ Bell called for a “cast-iron guarantee from Labour not to change tax relief or tax-free cash entitlements while in government,” which, according to Summersgill, would help give the public greater confidence to save and invest for their future.
