Reeves causes pension panic: savers rush to withdraw money for fear of a raid on the pension pots

Savers are rushing to withdraw money from their pension funds amid growing fears of a tax raid on employment tax on pension pots, the boss of a leading investment platform has warned.

Chancellor Rachel Reeves is expected to consider a reduction in the limit on tax-free withdrawals in her budget later this month.

This is despite industry warnings that interference in the sector could deter people from saving for their retirement.

AJ Bell chief executive Michael Summersgill said yesterday that speculation over the budget had created ‘useless uncertainty’.

In addition, rival investment managers St James’s Place and Rathbones have seen their clients respond to concerns about what the Chancellor might do, with some concerned about a possible increase in capital gains tax (CGT).

Summersgill said: ‘Pensions are the main vehicle for retirement savings in Britain and customers are unsurprisingly sensitive to changes in their tax treatment.

‘Amid increased press coverage ahead of the Budget (on October 30), we have seen a noticeable change in both customer contributions to pensions and tax-free withdrawals.’

However, AJ Bell reported that despite the uncertainty, there had been net inflows of £6.1 billion in the year to September, a 45 per cent increase on the previous year.

Under current rules, savers can take up to 25 percent of their pension as a tax-free lump sum when they reach the age of 55, up to a maximum of £268,275.

Reeves has been urged by the Institute for Fiscal Studies (IFS), a prominent think tank, to reduce that limit to £100,000, raising £2 billion.

Speculation is rife that the Chancellor is seriously considering this option, as Labor has ruled out increases in income tax, corporation tax and VAT.

Meanwhile, Reeves is also said to be planning an increase in the CGT rate applied to profits made on the sale of shares.

And she is said to be considering increasing employers’ national insurance contributions, prompting a response from the business community.

St James’s Place chief executive Mark FitzPatrick said yesterday: ‘Uncertainty remains in the outlook for consumers, savers and investors.’

Rathbones said it was also hit by “uncertainty around the budget”. A spokesperson said: ‘Many investigations have been carried out on a number of points, including in the areas of pensions and CGT.

“We are also having conversations with clients about where they have uncrystallized profits in their portfolios and the extent to which they should take into account their willingness to crystallize profits ahead of budget.”

Reeves is said to have decided against a separate raid on pensions, which would have allowed her to scrap the tax relief on pension contributions for higher incomes.

But experts are lining up to warn the Chancellor to be careful about changes that could deter retirement savings – at a time when many are not putting away as much as they need to enjoy the lifestyle they would like to enjoy.

Amanda Blanc, chief executive of insurance giant Aviva, has urged Reeves to consider the “long-term impact” of any reforms.

And last month, Antonio Simoes, CEO of Legal & General, told The Mail on Sunday: ‘We need people to invest more for their retirement and if you keep changing the incentives there will be no stability.’