CashNews.co
The number of people rushing to take advantage of pension pot tax perks has surged amid fears they will be scaled back or wiped out in the October Budget.
Investment experts say speculation that the Chancellor will target private pensions to raise billions has triggered jitters that could see workers make rash decisions with their cash and savings.
The number of SIPP (Self Invested Personal Pension) customers contributing the maximum £60,000 annual figure allowed has jumped 64 percent from April through to September compared to the same period last year.
This increase comes against the background of concerns that the Chancellor could reduce the tax relief offered on these contributions.
There has also been a 58 percent increase in the number of tax-free withdrawals from SIPP accounts. Currently, account holders can take out 25 percent of the value of these pots free of tax – however, there is speculation this could be scaled back and capped.
The figures come from interactive investor, who are the UK’s second-largest DIY investment platform. They advised that it will take some time for any changes announced in the budget to be implemented.
The government has warned that ‘tough decisions’ will be made as part of efforts to plug a £22 billion black hole in the public finances.
While the government has pledged not to increase income tax, VAT, and national insurance, it has notably not ruled out changes to the pension regime. This has led to speculation that changes to pension tax relief and private pension contributions could feature in the budget.
Myron Jobson, Senior Personal Finance Analyst, interactive investor, said: “With the swirling rumours of changes to the UK pension regime, it’s understandable that many might feel a bit jittery about the future of their retirement savings. However, it’s crucial not to let speculation drive hasty and irreversible decisions when it comes to your pension.
“Pensions are inherently long-term investments, and their benefits, like tax relief on contributions and potential employer matches, are designed to grow over time. Knee-jerk reactions to unverified rumours can lead to costly mistakes, such as unnecessary charges or missed growth opportunities.
“Remember, any significant policy shifts typically go through extensive consultations and legislative processes. This means you’ll likely have ample time to understand and adapt to any confirmed changes.
“It’s wise to keep an ear to the ground, staying informed about potential changes. But more importantly, base your decisions on solid financial advice and verified information.”
He warned people to avoid making rash decisions based on speculation and focus on the fundamentals.
“The need to ensure you have enough money in your retirement nest egg remains crucial whether or not changes to the pension regime are announced in the upcoming budget,” he said.
“It remains important to ensure you’re making adequate contributions to your pension to meet your long-term retirement goals. As ever, portfolio diversification, spreading your investments across different asset classes, can help manage risk and improve potential returns.”
He said it could be a mistake to take a 25 percent tax-free lump sum earlier than is necessary, adding: “It reduces the amount of money in your pension pot, which will decrease the amount available for your retirement income.
“The remaining 75 percent of your pension pot, when accessed, would be subject to income tax at your marginal rate, meaning any withdrawals or annuities purchased with the remaining pension could be taxed as regular income.
“By taking out a big lump sum, you also reduce the amount that could potentially grow with investment returns, which could have a profound impact on the total value of your pension pot over time.
“It is worth consulting a qualified financial adviser before making any decisions about taking a lump sum to help you understand the long-term implications for your retirement planning.
He added: “Remember, pensions are a marathon, not a sprint, and a well-considered strategy will serve you better than reactionary moves.”