𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

The Government has given an official response to a campaign which is calling for safeguarding people’s pensions from potential tax raids. There are worries Chancellor Rachel Reeves might target tax-free cash lump sums from pensions in her November 26 budget – prompting savers to rush to withdraw the money.

A petition on the Parliament website calls on Ms Reeves to establish a Pension Tax Lock to help safeguard retirement savings and incentives. Backing has soared and it has now received an official response from the Treasury after hitting 10,000 signatures, and could even compel a debate in the Commons if it garners backing from 100,000.

The petition, which has now been signed by 18,628 people, says: “The Chancellor should introduce a Pension Tax Lock: a commitment not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions. We believe this would help ensure retirement savings are protected and people can save with confidence

“We believe this simple commitment could put an end to the speculation seen ahead of every Budget – speculation which we think erodes confidence in long-term saving and can all too often lead to people making poor, sometimes irreversible, financial decisions.

“We think this would come at zero cost to the Exchequer and would allow people to save for retirement with more confidence. We feel it could support the government’s twin aims of delivering pensions adequacy and boosting economic growth.”

Now the Treasury has responded – and refused to be drawn on the eve of the Chancellor’s budget on November 26. It said: “With regard to the proposed ‘pension tax lock’, the Government does not comment on proposed tax changes or tax-related speculation ahead of Budgets.

“The Government recognises the importance of promoting confidence in pension saving and is committed to ensuring future generations of pensioners have security in retirement. This is why the government announced a landmark two-phased review of the pensions system days after coming into office.”

The Treasury added that it was aiming to help people to save as much as possible for retirement: “The Government wishes to encourage pension saving, to help ensure that people have an income, or funds on which they can draw on, throughout retirement. The Government is committed to supporting savers at all stages of life. That is why, for the majority of savers, pension contributions made from income during working life are tax-free.

“This is known as ‘pensions tax relief’. This relief is available at an individual’s marginal rate. For example, contributions from a basic rate (20 per cent) taxpayer who contributes to a registered pension scheme in 2025/26 receives tax relief at 20 per cent. This makes pensions tax relief one of the most expensive reliefs in the personal tax system, costing £78 billion in 2023/24.”

The full extensive response can be read here.

Financial experts have voiced concerns at the numbers of people withdrawing money from pensions fearing a raid in the budget. Investment platform AJ Bell has urged Chancellor Rachel Reeves to publicly oppose changes now, to prevent people from making rash decisions that could damage their retirement finances.

Mark Cunningham, a partner at accountancy firm Blick Rothenberg, commented: “With the next Budget imminent, speculation is again building. If no changes are intended, it could be seen as irresponsible of the Chancellor not to confirm this in advance, given the previous history and the impact on those approaching retirement.”

In light of recent statements issued by the Financial Conduct Authority and HMRC regarding tax-free cash cancellation rules, pension experts have issued warnings to savers. One expert has called on Chancellor Rachel Reeves to rule out any changes now, to prevent people from making rash decisions that could negatively impact their retirement finances.

Leading investment platform AJ Bell has echoed this sentiment, urging the Chancellor to take a stand against changes now.

Rachel Vahey, head of public policy at AJ Bell, has urged the Chancellor to publicly dismiss any changes to tax-free cash in order to quell speculation. She said: “The Chancellor needs to publicly rule out changes to tax free cash in order to put an end to speculation. Doing so would alleviate uncertainty and show that the government is on the side of workers saving for the future.”

Last year, there were expectations that the government might further limit the 25 per cent tax-free cash that can be taken from pensions (currently capped at £268,275) or decrease the higher rate tax relief on pension contributions. However, neither of these changes came into effect, although pension providers noted a surge in people accessing their pension funds ahead of the Budget.

Marianna Hunt from Fidelity International, a pensions provider, warned about the potential negative impact this could have on individuals’ future financial planning. She stated: “This may have had negative consequences for future financial planning for those individuals. This highlights the dangers of making financial decisions on the back of speculation, without seeking advice or guidance on your options.”

To view the petition and Treasury response click here.