Chris Johnston of the FT starts today with news that the amount withdrawn from UK pensions in tax-free lump sums jumped more than 60 per cent over the past financial year, as savers prepare for possible changes to the tax rules on retirement funds.
A response to a freedom of information request submitted by wealth manager Evelyn Partners to the Financial Conduct Authority revealed that individuals withdrew £18.1bn in the year to end of March, up from £11.25bn the previous year.
This chart has since been published and formed a larger article by Mary McDougall and Emma Dunkley
The rush comes as the government announced in last October’s Budget that pensions would be subject to inheritance tax by April 2027, meaning retirement funds will no longer be a tax-efficient form of succession planning.
There is speculation that the government will reduce the size of the tax-free lump sum that retirees can withdraw from their pension after the age of 55 in this year’s Budget. The allowance is currently set at 25 per cent up to a cap of £268,275
Citywire are running with the story
It marks a 60% uptick in the amount withdrawn, with it reported that most of the money was withdrawn in the second half of the financial year, ending in March.
The number of people who took some or all of their tax-free cash rose sharply, up from 163,500 to 211,000 year on year.
Currently, savers can withdraw up to 25% of their pension pot tax free, up to a cap of £268,275.
The spike in withdrawals came ahead of a frenzy before last year’s Autumn Budget, when there were persistent rumours that the chancellor was going to cut the lump sum allowance. In the end Rachel Reeves never did, however advisers said many clients wanted to withdraw their 25% tax-free pension in case there were changes and many heard of people withdrawing pensions because of the rumours.
Greg Neall, chartered financial planner at Wake Up Your Wealth, urged the government and regulator to provide clarity on the issue.
More feedback from the wealth sector is interesting, IMO people with really small DC pots can get their whole pot tax free cash if they’re careful.
Petronella West, CEO of Investment Quorum, said the government could face near-insurmountable difficulty and pressure if they look to change the 25% tax free allowance.
To reduce the level for the public sector schemes, West said, the government would need to change legislation.
It could face questions of unfairness should they reduce the allowance for private pensions but not public sector schemes, West added.
‘I think taking away people’s 25% tax free lump sum is a very unpopular move,’ she said. ‘It will disadvantage a lot of people who have small pension funds.’
Subscribe to FT newsletters and if you do, you can read Chris Johnston’s on your browser here
Disgraceful retrospective legislation The only useful protest is to leave the country until it starts addressing the issues instead of sniping like a 5th form debating society…
It’s worth repeating a call for action (see link) rather than allowing in the misery of a failed economy
A wider perspective is called for in order to get Britain back on track. Torston Bell’s book describes issues considered, as did the 2023 report by the Resolution Foundation
https://economy2030.resolutionfoundation.org/reports/ending-stagnation/
A decade and a half of stagnation cannot be fixed in one Parliament.
The Treasury said it continued “to incentivise pensions savings for their intended purpose — of funding retirement instead of them being openly used as a vehicle to transfer wealth.” (FT) We could add the tax free slice of the pot.
Applying your argument to DB are you content if the DB surplus is confiscated?
Nope!