Ahead of the forthcoming Autumn Budget, there is mounting speculation the government might cap or cut the tax-exempt pension lump sum.
If you are retirement planning in Cheshire, it’s worth noting that more and more people have been expressing an interest in taking lump sums from their pensions.
The question is whether the Chancellor, Rachel Reeves, will use the Budget to make changes in this area. Currently, the tax-free pension lump sum allows savers to withdraw anywhere up to 25% of their pension pot, or up to £268,275, before incurring tax. Some analysts have indicated that the government might reduce this limit to £100,000, or even as low as £40,000, in a bid to increase revenue and shake up pension tax relief.
Whatever course of action Chancellor decides to pursue, pension savers have already started seeking guidance to mitigate their exposure in retirement. Some financial professionals have reported a 45% increase in enquiries. Many savers have been asking whether they should be taking action now to protect their existing entitlement pre-Budget or wait to see what happens.
Whilst the answer may depend on individual situations, this could pose a significant test for the UK pension system in the longer term. Much will depend on whether savers approaching retirement age opt to deplete their pots with early withdrawals. Some people may yet decide on alternative, or less efficient investment strategies, with added risk.
This issue is a factor in why there have been calls for the Treasury to offer maximum clarity and reassurance, so as to avoid unnecessary anxiety for pension savers.
