Home Business Investors are rushing to withdraw pension funds amid fears of tax hikes in the upcoming budget

Investors are rushing to withdraw pension funds amid fears of tax hikes in the upcoming budget

by trpliquidation
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Investors are withdrawing money from their pension pots in increasing numbers, fearing potential tax rises in the upcoming budget.

Investors are increasingly withdrawing money from their pension pots, fearing possible tax increases in the coming budget.

AJ Bell, one of Britain’s largest DIY wealth managers, has reported a significant increase in pension withdrawals as customers switch to tax-free lump sums ahead of potential government changes.

Michael Summersgill, CEO of AJ Bell, noted “a noticeable change in both customers’ contributions to pensions and tax-free withdrawals”, as speculation grows that Chancellor Rachel Reeves could reduce the current tax-free limit. Under existing rules, savers aged 55 and over can withdraw up to 25% of their pension tax-free, up to a maximum of £268,275. However, rumors of a lower limit have prompted many customers to cash in on this allowance before the October 30 budget.

In addition to increased withdrawals, some customers are increasing pension contributions because they fear the government will change the tax benefits on pensions. “Many are taking advantage of the current system before any potential changes come into effect,” an AJ Bell spokesperson said.

Despite the changing customer behavior, Summersgill emphasized that the shifts will not materially impact AJ Bell’s overall performance, but warned that “these are important decisions for individual customers.” He called on the Ministry of Finance to introduce a “pension tax lock” in the budget to ensure stability in pension tax law for the rest of this parliament.

The uncertainty surrounding the budget also has consequences for other investment platforms. Vanguard has reported an increase in the number of customers making full use of their tax-free rights in Isas and self-invested personal pensions (Sipps), as investors look to protect their savings from potential tax increases.

The growing speculation about tax increases comes as Labor prepares to implement its first budget since taking office in July. Both Reeves and Sir Keir Starmer have warned of “difficult decisions” ahead to fill a gap in public finances, with expectations that higher income earners could face additional burdens.

AJ Bell’s core platform business, which allows individuals to manage investments, shares, Sipps and Isas, has continued to grow despite tax concerns. The platform attracted 66,000 new customers in the year to September 30, bringing its total customer base to 542,000. This growth saw a 22% increase in assets under management, reaching a record £86.5 billion.

AJ Bell’s smaller asset management division also saw substantial growth, with assets under management rising 45% to £6.8 billion in the last twelve months. Analysts at Jefferies described the company’s fourth-quarter performance as “solid”, although shares in AJ Bell fell 5p, or 1%, to 476p after the trading update.

As the Budget approaches, the financial sector remains tense, with investors paying close attention to any changes that could impact their pensions and savings.

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