Rachel Reeves is under mounting pressure to rule out a punishing tax raid on pensions to make her Budget numbers add up.
Fears are growing that the Chancellor will be forced to raise taxes in the autumn as weak growth and higher borrowing costs blow a hole in her plans.
The Institute for Fiscal Studies has warned that ‘a raid on pensions’ may be on the cards – adding that even ‘mere speculation’ over such a move ‘can cause economic harm’.
That was the case ahead of the Budget in October, when rumours of new taxes on pensions led to a rush of savers withdrawing cash early.
Two former pensions ministers – Sir Steve Webb and Baroness Altmann – last week urged Reeves to rule out a raid on retirement pots to avoid a repeat of last year’s panic. Leading figures in the pensions industry echoed those calls last night.
Mike Ambery, retirement savings director at Standard Life, warned against making changes to ‘address short-term concerns’.
Money grab: Fears are growing that the Chancellor will be forced to raise taxes in the autumn
He added: ‘Speculation does have an impact on customer behaviour and in the run up to October’s speech we saw a notable uptick in people withdrawing tax-free cash from their pension, following rumours the perk could be reduced and potentially giving up the prospect of further investment growth.’
Stewart Hastie, partner at wealth advisory business Isio, called for ‘clarity and certainty’ from ministers over their plans for pensions.
Daniel Swift, head of financial planning at TrinityBridge, said: ‘Leading up to the 2024 Autumn Statement, there were many rumours around pensions that unsettled clients, several of which did not turn into reality. A repeat of this would not be good.
‘Ultimately a pension is a tax efficient way to build income for retirement. Any speculation that reduces the appetite for people to build for their own retirement can be damaging.’
Ahead of the Budget in October, speculation mounted that Reeves was planning a tax raid on pension pots as she struggled to make her numbers add up.
Among the options were cutting tax relief on the pension contributions of higher earners and slashing the amount savers can withdraw tax-free at the age of 55 from up to £268,275 to £100,000.
The threat to the tax-free lump sum proved particularly damaging as savers rushed to withdraw cash from their pension pots despite warnings it would leave them worse off in retirement.
Though Reeves decided against the move, she introduced a new death duty by dragging pension pots into inheritance tax.
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