Chancellor accused of 'turning a blind eye' to damage caused by 'doom loop' of speculation over a pension tax raid
Rachel Reeves has been accused of ‘turning a blind eye’ to the damage caused by a ‘doom loop’ of speculation over a tax raid on pensions.
The Chancellor has rejected calls for a ‘pensions tax lock’ – a commitment not to reduce the amount people can withdraw from their pots tax-free or the relief on contributions.
Experts warned her failure to rule out a tax raid paves the way for a repeat of the damaging speculation seen ahead of the last two Budgets, which led savers to pull money from their pensions unnecessarily.
Savers rushed to withdraw cash – leaving many worse off – amid rumours of an attack on the tax-free lump sum.
Two former pensions ministers have now urged Reeves to rule out a tax raid on pots.
Steve Webb, of consultants LCP, told the Daily Mail: ‘There is clear evidence that the speculation in the run-up to the 2024 and 2025 Budgets was damaging, as many people made premature decisions to access their pensions for fear of Budget tax changes.
Uncertainty: The Chancellor has rejected calls for a 'pensions tax lock' – a commitment not to reduce the amount people can withdraw from their pots tax-free or the relief on contributions
‘There is a risk that this will be repeated year after year unless the Chancellor rules out a raid on tax-free cash for the rest of this Parliament.’
And Ros Altmann added: ‘The constant concerns and speculation are depleting people’s pension funds.’
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Tom Selby, of investments firm AJ Bell, said: ‘Rachel Reeves has comprehensively failed to deliver much-needed certainty for pension savers by rejecting calls to commit to a pension tax lock.’
Savers can withdraw 25 per cent of their pension pots tax-free at the age of 55 – up to a maximum of £268,275. Workers can also save £60,000 a year tax free.
There was speculation ahead of Reeves’ two Budgets that she could slash the tax-free lump sum to as low as £40,000 and scrap tax relief on contributions for higher earners.
The Chancellor instead dragged pensions into inheritance tax for the first time. She also hit contributions with National Insurance.
AJ Bell subsequently launched a petition calling for a pensions tax lock to be introduced, which was rejected.
Selby said: ‘The Government is now knowingly turning a blind eye to the consequences and refusing to do anything to address it.
‘This runs a real risk that each Budget until the next general election will be met with the same doom loop of unbridled rumours about the fate of pension tax incentives.’
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