The reckless mistake Rachel Reeves made with savers’ pensions – and the way she will repair this mess: JEFF PRESTRIDGE
In recent days, evidence has been stacking up by the truckload confirming the untold financial damage that the Chancellor of the Exchequer inflicted on the long-term savings plans of hundreds of thousands of hard-working people in the run-up to last month’s Budget.
The evidence comes from the bosses of wealth managers and investing platforms – and those who collect data on flows into and out of investment funds.
It’s damning, and Rachel Reeves and her team of Treasury Oompa-Loompas should be ashamed of themselves.
These financial experts all agree that in the protracted 12-week build-up to the Budget, the Chancellor’s refusal to immediately rule out a cut in the amount of tax-free cash that people can draw from their pension caused many to panic and take money they didn’t need.
It was only two weeks before the Budget that Treasury officials (Reeves’ helpers) finally decided to let it be known that no such reduction would be happening (how gracious of them). The tax-free cash cap of £268,275 would remain in force after all, at least until the 2026 Budget.
Those who had taken tax-free cash they would not otherwise have taken were left fuming and, in many cases, financially impaired – their pension funds depleted, the future investment growth of their pot compromised and some (if not all) of their lump sum put into taxable savings accounts.
Both the heads of wealth manager St James’s Place and investing platform AJ Bell have expressed their dismay at the damage done.
Speculation about what was in the Budget, fuelled by leaks from within government, led many to make withdrawals from their pensions they may now be regretting
Mark FitzPatrick, chief executive of FTSE 100-listed St James’s Place, took to airwaves to express disappointment at Government failure to nip rumours about cuts to tax-free cash in the bud.
He said: ‘The run-up to the Budget… there was a lot of speculation… and people act on speculation. The flying of kites is unhelpful when it affects people’s lives.’
By kite-flying, Mr FitzPatrick was referring to Ms Reeves’ Oompa-Loompas leaking Budget measures under consideration to test what reaction they got from the public.
Michael Summersgill, boss of AJ Bell, also referred to the harm caused to investors when announcing his company’s impressive 2025 financial results.
He said that ‘uncertainty in the lead-up to the Budget resulted in heightened pension withdrawals as customers approaching retirement responded to the extensive speculation’.
He added: ‘Government must do more to provide pension savers with a clear commitment to tax stability, and we will continue to campaign for a “pensions tax lock” to deliver that certainty.’
This tax lock would be a commitment from the Chancellor (for the time being, Ms Reeves) not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions.
Mr Summersgill believes it would help to ensure retirement savings are protected and allow people to save with confidence.
He also says it could be a potential double win for Ms Reeves.
It would boost pension saving (15 million do not save enough) and increase investment in UK businesses, thereby helping the country to get out of its doldrums (the Chancellor’s fault) and into economic growth mode. Growth that Ms Reeves craves.
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The petition that could force a debate in the Commons
AJ Bell has launched a petition calling for such a lock. So far it has attracted support from 22,000 people. Although the Government has given a written response (a requirement once 10,000 people back a petition), it’s not interested in the idea.
But if AJ Bell can persuade 100,000 to back it, the petition could be debated in the Commons.
That would be interesting, if only to hear Ms Reeves explain why such a pension tax lock would not be in the interests of all.
The final piece of the evidence jigsaw confirming the harm done by pre-Budget speculation surrounding cuts to tax-free pension cash (and higher taxes on investing) was provided by financial data gatherer Calastone.
It said that in October – when Budget speculation was at fever pitch – UK investors withdrew a record £3.6 billion net from equity investment funds with a further £3 billion withdrawn last month. It was only on the day of the Budget that the outflows ceased.
Like Mr FitzPatrick and Mr Summersgill, Calastone’s head of global markets, Edward Glyn, pointed his finger firmly at Ms Reeves and her Oompa-Loompas to explain this investor exodus from investment funds.
He said that the political narrative in the run-up to the Budget had played ‘havoc with UK investors’ and that the sudden halt in equity fund outflows after it had been delivered led him to draw one irrefutable conclusion.
Namely, that investors had sold investments over concerns about a curtailment of pension tax-free cash – and of higher taxes on capital gains from the sale of shares.
Echoing Mr Summersgill’s message, he said that savers ‘benefit most from clarity and consistency, so they can plan properly for long-term goals’. Too right.
If I was Chancellor, I would apologise for the financial harm caused by refusing to knock on the head pre-Budget rumours about scary cutbacks to tax-free pension cash.
I would then offer those people who took tax-free cash they didn’t really need, but wanted to protect, the opportunity to unwind what they did – and put themselves back in the position they were in before the rumours began.
But of course I’m not Chancellor. Maybe it’s time for her Treasury Oompa-Loompas to step up to the mark and earn their keep by telling her that such a course of action is the honourable thing to do.
After all, they no longer have their kites to fly.
