Tax uncertainty fuels pension decisions

1 year ago

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Constant rumour and speculation about the future of retirement tax incentives – primarily the tax treatment of pension contributions and tax-free cash on retirement – are hugely damaging. People are taking financial decisions in part based on pre-Budget speculation and it chips away at people’s confidence in pensions generally.

Our customer data reflects this uncertainty, with pension contributions up by almost 60% in September versus the same month last year and the number of people accessing their tax-free cash around a third higher than the average during the past year.

Furthermore, almost 100% of advisers we surveyed said they’ve dealt with tax and pension queries from clients concerned about the Budget, with a third saying they had seen an increase in clients wanting to take tax-free cash in anticipation of a pensions tax raid in the Budget.

The Chancellor has an opportunity to nip this in the bud by using her inaugural Budget to publicly commit to a pact on pension taxation. A clear promise to deliver tax stability on pensions for at least a decade would provide much-needed certainty to savers across the country.

When we commit money to a pension, the deal is that we sacrifice spending power today so that we can provide for ourselves later in life. Even the perception that government might renege on the terms of the deal risks people taking actions which may not be in their best interest.

Rumours about the future of tax-free cash, one of the best understood and most valued benefits of pensions, are particularly problematic. Taking your tax-free cash is an irreversible decision and, assuming the Chancellor doesn’t pursue a disastrous raid on tax-free cash, those people may find they’re in a worse financial position long-term. A concrete pension tax pact would allow hard-working savers and retirees to focus on their long-term goals, rather than being knocked off course by speculation of future changes.

*Based on 131 responses to an online survey of advisers carried out between 30 September and 2 October 2024.

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Michael Summersgill

Chief Executive Officer (CEO)

Michael joined AJ Bell in 2007 and was appointed as CFO in 2011. His role broadened from 2014 onwards, when he began to take on responsibility for the group’s operational functions. In his time as CFO Michael led a number of key change initiatives, helping to develop AJ Bell into one of the UK’s leading investment platform businesses. Michael became Deputy CEO in 2021, a role focused on developing the group’s strategy and organisational structure. He was appointed as CEO in October 2022.