Pension Raid Fears Must be Addressed Immediately, Warns Financial Specialist

Above: File image of Chancellor Rachel Reeves. Image source: Keir Starmer Official.

The government is urged to provide clarity on pension reforms to avoid missteps.

Chancellor Rachel Reeves has been urged to provide more clarity on what aspects of the pension system won't be targeted in the budget, due in three weeks.

"There is increasing anxiety surrounding potential pension reforms," says Rachael Griffin, tax and financial planning expert at Quilter.

Griffin says rumours of restrictions on the 25% tax-free cash (TFC) lump sum have led to significant concern, particularly for those in or on the cusp of retirement.

"Plans such as these, if implemented without consultation and clear communication, could lead to a rush of ill-considered withdrawals," says Griffin.

Those protecting retirement income have long planned under the assumption that they could access this portion of their pension tax-free, and any sudden restrictions could force hasty financial decisions.

"Without transparent guidance on pensions, individuals may make detrimental choices based on hearsay with what is likely the most important and largest pot of money they have," says Griffin.
 
Quilter urges the government to provide immediate clarity on what pension-related changes are not in scope to prevent poor decisions, particularly as any significant reforms could have long-lasting effects on retirement planning.

"Denying access to previously promised benefits would cause distress among savers, many of whom have structured their entire retirement strategies around the existing rules," says Griffin.

However, by offering clear assurances and communication ahead of the budget, the government can help retirees avoid making rash, ill-advised financial moves as we are seeing from some at the moment, that could have ramifications for someone’s entire retirement.

Chancellor Reeves has already confirmed she won't meddle with the rate of tax relief on pension contributions following a backlash from unions.

She had supported cutting the pension contribution savings rate for top-rate taxpayers by as much as 15% of the additional tax relief they currently utilise.

However, pressure from trade unions is believed to have contributed to the policy's likely non-appearance in the Budget later this month. The Chancellor reportedly dropped the plans after the Treasury raised fears it could penalise up to a million public sector workers with modest incomes.

Reeves still looks set to target the relief granted to employers on the money they pay into employee pensions.

Existing relief currently exempts employers from paying National Insurance (NI) on those contributions.

"Tax relief on employer pensions contributions and capital gains tax rises could raise around £30bn, hence why Reeves is looking at these as viable options for reform at the end of October," says John Hardy, Chief Macro Strategist at Saxo Bank.

However, Hardy warns the Chancellor must tread carefully to ensure the move doesn't make investment into stocks and shares, particularly into UK equities, unattractive for retail investors, whether that is through their pension or using their own investable assets.