Chancellor Rachel Reeves unveiled Labour’s first budget since being elected to government – with a focus on slashing national debt, boosting the UK economy and protections for working Brits.
The Chancellor has opted not to make changes to the pensions commencement lump sum which some are saying has come as a welcome ‘relief’.
Rumours in recent weeks suggested Reeves may have cut the percentage of tax-free cash available from 25 per cent or reduce the maximum amount from its current £268,275.
The rumours caused concern with significant rises in people looking to take their tax-free cash ahead of the Budget.
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
“The Chancellor’s decision not to tinker with tax free cash has been greeted with a huge sigh of relief. This is a hugely popular part of the pensions system and any move to reduce it would have severely undermined people’s trust.
Rumours have swirled in recent weeks, and it’s caused huge concern with people looking to take their tax-free cash before any change was announced. It’s a move that many could come to regret as ripping money out of a pension removes it from a hugely tax efficient environment and denies it the ability for further growth. There’s also the chance that putting it in other savings vehicles potentially exposes it to a whole range of taxes, such as capital gains tax, that it otherwise would not have been.
Anyone who took their money from their SIPP but wishes to reinvest it should consider this carefully. Those who have only recently opened a drawdown account could be able to reverse their decision. But there’s the potential to breach recycling rules aimed at preventing people exploiting the system for extra tax relief and be clobbered with a fine. If in doubt speak to a financial adviser about your best course of action.
“Tax free cash reform is always a popular subject for Budget rumour, but we need to avoid causing panic that can result in people taking knee jerk decisions. Government needs to consider pension tax policy in a long-term holistic way that reduces complexity and gives people the confidence they need to save for the long-term without fear of being tripped up by changes further down the line.”
One Response
Next budget wait and see