Budget fear factor affecting advice calls

11 October 2024

Financial advisers have said they are receiving growing numbers of calls from clients wanting to take the 25% tax-free cash lump sum from their pension ahead of the Autumn Budget, adding that for the new Government to allow these rumours to persist is “really poor” and leaving advisers “between a rock and a hard place”.

Pension-related areas are ones to which Labour is likely to look in order to raise revenue, said Christy Wilson, tax associate at Katten Muchin Rosenman LLP. “Currently, up to £268,275 lump sum can be withdrawn from a pension pot tax-free, Labour may look to reduce this amount. The Institute of Fiscal Studies highlighted that such a change would apply to money contributed to pensions according to the existing system meaning that this change could retrospectively impact pension planning,” she said.

Mark Scott, director and IFA at Positive Advisers, said his clients, fearful of  the potential changes have been bringing forward their tax free cash requests.

“I’ve been getting many calls from clients wanting the 25% tax-free cash from their pension. They are terrified that Rachel Reeves will start taxing this feature of the current pension system. If she does make changes, they will most likely start at the beginning of the next tax year. IFAs would be inundated with calls for help if this change is enacted, and the markets could see massive withdrawals, sparking a fall in values in the sell-off.”

Like Scott, Colin Low, managing director at financial advice firm, Kingsfleet, says he has had lots of calls from concerned clients also.

“This is proving to be a very difficult situation. We have had numerous calls from clients convinced that the new Government will be reducing the access to tax-free cash on personal pensions. It’s important to state that this is only hearsay and that is no way to shape the advice given to clients on one of the biggest financial planning decisions they will make.

Should clients be encouraged to take their full current tax-free cash entitlement, aware that this takes away the possibility of it growing in the future, or should they hold fast and wait for the Budget on 30th October, “knowing that they could lose all or some of their remaining tax free cash”? he asks.

“For the Government to continue to allow these rumours to persist is really poor. We are regulated in order to encourage wise long-term decisions with money but we are caught between a rock and a hard place here.”

Ross Lacey, director and chartered financial planner at Fairview Financial Management, advised caution before people act.

“Our advice has been not to make any rash decisions based on ifs, buts and maybes. Historically, any changes made by government on things like this have included transitional protection, so that those who would already be affected by the new rules keep whatever rights they currently have.

“Examples of this have been where the lifetime allowance was previously reduced in 2012, 2014 and 2016 and also tax-free cash entitlements of more than 25% available to some people with pensions started prior to 2006.

“Seeing as there’s a greater emphasis on people providing for their own retirement and pensions already suffer with an image problem, we think it would be madness to make any changes to pensions that make them less attractive.”

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