There were no changes to pension tax relief in the Autumn Budget, as chancellor Rachel Reeves looked elsewhere to make savings.
Rumours suggested she may look to either cut the percentage of tax-free cash available from 25% or reduce the maximum amount from its current £268,275.
The rumours caused concern, with significant rises in people looking to take their tax-free cash ahead of today’s Budget (30 October).
Standard Life retirement savings director Mike Ambery, said that it would have been a “potentially powerful tool in the chancellor’s revenue-raising kit”.
However, he added that “it seems the challenges and complexities proved too great for this Budget”.
“Firstly, they would have been highly complex to implement and secondly they came with political downsides given their knock on implications for public sector workers in particular,” Ambery said.
“As we have now seen, there are other aspects of the system which pose fewer logistical issues and perhaps come with fewer strings attached.
“There is a possibility that the government will revisit the question of tax relief alongside pensions issues in the round in the adequacy section of their upcoming Pensions Review.
“Tax relief is however a key tenant of the current pension system and any future discussion needs to ensure there are adequate incentives for people across the earnings spectrum to give up income today for greater security in retirement.”
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, added: “The chancellor’s decision not to tinker with tax free cash has been greeted with a huge sigh of relief.
“This is a hugely popular part of the pensions system and any move to reduce it would have severely undermined people’s trust.
“Rumours have swirled in recent weeks, and it’s caused huge concern with people looking to take their tax-free cash before any change was announced.
“It’s a move that many could come to regret as ripping money out of a pension removes it from a hugely tax efficient environment and denies it the ability for further growth.
“There’s also the chance that putting it in other savings vehicles potentially exposes it to a whole range of taxes, such as capital gains tax, that it otherwise would not have been.”
Morrisey said that anyone who took their money from their Sipp but wishes to reinvest it “should consider this carefully”.
“Those who have only recently opened a drawdown account could be able to reverse their decision,” she said.
“But there’s the potential to breach recycling rules aimed at preventing people exploiting the system for extra tax relief and be clobbered with a fine.”
She said tax-free cash reform is “always a popular subject for Budget rumour”, but stressed “we need to avoid causing panic that can result in people taking knee-jerk decisions”.
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