The boss of St James’s Place has warned against a tax raid on pensions that could handicap UK investment.
Mark FitzPatrick’s warning came amid growing evidence of panicked savers pulling out cash ahead of next week’s Budget.
The wealth manager’s chief executive said tax changes could ‘lead to damaging unintended consequences’ by putting people off saving just as the Government hopes more of that money can be used to boost economic growth.
Pension raid: Speculation is growing that Chancellor Rachel Reeves (pictured) will reduce the tax-free lump sum that can be withdrawn by savers from their pension pots
That growth is the only way the UK can afford to pay for the investments needed in public sector assets such as schools and hospitals, he argued.
St James’s Place, which looks after funds worth £184billion, has already revealed that uncertainty ahead of the Budget is affecting customers. Rivals including AJ Bell are also seeing customers take action.
Writing in the Mail, FitzPatrick said: ‘With the Government’s objective of increasing investment in British assets and growth, we should avoid doing anything which further reduces investment.’
Speculation is growing that Chancellor Rachel Reeves will reduce the tax-free lump sum that can be withdrawn by savers from their pension pots.
When people reach the age of 55, they can take out 25 per cent of the total free of tax, up to a maximum of £268,275. Reeves is rumoured to be considering a cut to £100,000.
Such a change would move the goalposts for savers who have spent years carefully putting aside cash with the goal of taking out the money at that time to pay off a mortgage, fund their children’s university education, or help them on to the housing ladder.
That could put people off saving towards retirement, FitzPatrick warned.
The former chief executive of insurer Prudential said speculation was ‘rife’ about the Budget, adding: ‘This is causing uncertainty and resulting in changes in consumer behaviour, some of which may not be in their long-term interests.
‘Once tax-free cash is taken out, very often the potential pension-related advantages are lost for good.’
He urged savers to make a ‘proportionate and sensible response’ to any changes to their personal finances rather than any ‘hasty reaction’.
And FitzPatrick – who succeeded Andrew Croft at St James’s Place a year ago – pointed out that Reeves’s potential tax raid comes at a time when UK stock markets are already suffering a damaging outflow of funds.
Meanwhile, the Government is trying to revive investment in British assets, partly by unlocking trillions of pounds of accumulated pension savings.
Hands off: St James’s Place boss Mark FitzPatrick warned a tax raid on pensions could ‘lead to damaging unintended consequences’
‘This Government knows, better than anyone, that a growing economy is the only way to deliver the scale of tax receipts needed to invest in the public sector,’ FitzPatrick said.
‘It is for this reason that I would encourage the Chancellor to carefully navigate the path towards October 30.
‘With a challenging fiscal situation, I think all of us who are privileged enough to be better off should expect to contribute more if our Government asks us to.
But the Chancellor will also know that tax rises must not lead to damaging unintended consequences such as disincentivising those saving towards pensions.’
The Government’s own financial advice website, MoneyHelper, has even acknowledged the uncertainty facing savers about the 25 per cent tax-free lump sum.
It says: ‘Nothing has officially been announced or confirmed, so there’s no need to make any quick decisions about your pension right now.’
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