High net worth individuals are taking tax-free pension cash and changing investment strategies to prepare for the upcoming Budget, according to Wealth Club.
More than a third (37%) of Wealth Club’s clients had either taken some of their pension wealth as a tax-free lump sum or were considering doing so in response to speculation that the Chancellor could curtail the allowance.
Currently, pension savers can take up to 25% of their retirement pot as a lump sum, capped at £268,275.
Wealth Club said Budget speculation was not just affecting pensions; clients are also changing their investment strategies to make the most of existing tax reliefs.
More than half (56%) say they were maximising tax-free income and growth from ISAs ahead of the Budget. More than a third (36%) were making use of the income tax relief and tax-free dividends of venture capital trusts, while a fifth (20%) were making the most of pensions tax relief worth up to 45%.
Wealth Club said a quarter (25%) of those surveyed also said they were considering selling some of their most profitable investments to avoid potentially having to pay more capital gains following the Budget.
Alex Davies, founder and chief executive of Wealth Club, said: “With rumours swirling around about what the Government might do in the Budget, high-net-worth investors are moving fast to get their affairs in order. We’re seeing people withdraw the tax-free cash from their pensions and putting more into tax-efficient vehicles such as ISAs and VCTs just in case any of the rules change.
“Using your ISA and VCT allowances ahead of time makes sense in the unlikely event of changes. But taking cash out of your pension is a much bigger and riskier decision.
“If you’re planning to retire within the next 12 months, taking your tax-free cash before the Budget might be a good idea. But for those with longer to go, the risks increase significantly. Taking money out early will likely mean a smaller pot to live on later. And if – as is quite possible – nothing changes, you’ll have taken funds out of a tax-efficient environment for no reason. And there’s no way to reverse that.”
Davies said changes in client behaviour show how damaging the constant threat of government tinkering can be to people’s long-term wealth.
“We urge the Chancellor to leave pensions alone. Otherwise, those who’ve worked hard and saved all their lives may well end up poorer – and those still saving will lose trust in the system,” he added.
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