AJ Bell has urged the government to commit to a ‘Pensions Tax Lock’ to provide savers with greater stability and confidence surrounding pension taxation.
In a letter to the Chancellor, the investment platform has urged the new government to make a public pledge to uphold the key features of the pension tax system in its upcoming Budget, which it says will send a clear signal it is committed to pension tax stability over the long term. Doing so will ensure workers can “invest for retirement with confidence”, the group said.
With less than two weeks to go until Labour’s inaugural Budget, speculation has been growing that the Chancellor may make changes to pensions tax-free cash, as well as the tax treatment of pension contributions. AJ Bell warned that such speculation risks undermining consumer confidence and addressing uncertainty should be a key priority for the Chancellor.
Michael Summersgill, CEO of AJ Bell, said: “The Chancellor should resist a short-sighted tax grab from the nation’s long-term savings system. Instead, a public commitment to a Pensions Tax Lock, promising not to tinker with the fundamentals of the pension tax system in this parliament, would deliver confidence for savers and signal that this government is serious about supporting long-term prosperity.”
Summersgill said workers who set money aside decades before retirement should not be subject to endless rumours about how their money may or may not be taxed.
He continued: “Individuals are expected to spend their entire working life building a retirement pot based on a pension tax pact with the government. A commitment is made in good faith that they will be rewarded for making sacrifices today to provide for themselves tomorrow. Yet in recent months speculation around the future tax treatment of pension contributions, as well as entitlement to 25% tax free withdrawals from a pension in retirement, has been allowed to fester. This risks undermining confidence in the UK’s most critical long-term savings vehicle, upon which the retirement security of millions of working households in the country depends.”
Summersgill added that a public commitment to a Pensions Tax Lock would not only provide savers with greater confidence, but “lay down the gauntlet to any successor tempted to raid the nation’s savings.”
