Let’s give pension savers the clarity they need… and deserve

Budgets and pension tax rumours are like mac and cheese. Where you find the first, you know the other one will follow.

But despite speculation on cuts to pension tax-free cash appearing with predictable regularity every year, this time it feels a bit different.

This could be down to a pervading sense of nervousness about the approaching Budget. City AM recently led with some research that most voters (57%) expected the Budget to directly harm their personal finances. But more alarming was that only one in a hundred over 55-year-olds believed they would be better off as a result of the Budget.

This type of research offers a reason why some pension savers may be considering taking their tax-free cash now, worried that the Chancellor may stand up on 26 November and announce a cut.

Another important factor is the change to including unused pension pots in IHT calculations – a move that, to some, represents a shifting of the goal posts. Over the past ten years clients have devised their pension and investment strategies around using their pension as the last source of income and passing on the remainder to their family to help them out.

Whether they were right to do this or not, to some degree, doesn’t matter; it will still feel to them a retrospective change eroding their trust. Egged on by a concern to mitigate future IHT bills and surrounded by a swirl of rumours, some are going to want to be sure of the tax-free cash they have built up.

There are very good reasons why a cut to tax-free cash is unlikely. To start with, on every single occasion the lifetime allowance has been cut, transitional protection has been introduced to protect benefits already built up, so it would be difficult to go against this set precedent. Moreover, tax-free cash is the one part of pensions people both value and understand, and to cut it would be a deeply unpopular move. Finally, it wouldn’t raise that much money in the short term. It’s a financial slow burner, whereas this Government needs quick fixes.

But some people need more reassurances than these sensible arguments offer. Which is why AJ Bell has launched a new parliamentary petition requesting that the Government commits to retaining key pension tax incentives, for at least this Parliament, so ending damaging speculation over the future of pension tax-free cash and tax relief.

When people save in a pension they enter a tax pact with the government. They sacrifice part of their take-home pay for the long term, and in return they get tax relief on contributions and a promise of a 25% tax-free lump sum on retirement.

The UK needs this solid foundation to encourage people to save for their retirement, so that the burden of supporting them financially in later life doesn’t fall entirely on the state. Individuals contribute to a pension in good faith and shouldn’t be subject to endless speculation that a government may move the goalposts before they can access their money.

Committing to a Pension Tax Lock is an easy thing for the Government to do. It doesn’t cost any money, and it will appeal to older and younger voters alike.

Our petition has already reached the crucial 10,000 signatures, which means the Government will have to respond, hopefully initiating an important discussion on why pension savers today both need – and deserve – clarity and reassurance along their pension saving journey. To really drive the point home we now need even more signatures. If we can reach the 100,000 mark, our petition will have to be considered for debate in Parliament.

I hope you will add your voice.