2 weeks Ago By Charlie Bradley
Savers have been warned against making a big mistake with their pension pots that could cause them get "clobbered" with tax. As Chancellor Rachel Reeves looks to raise £40billion in Wednesday's budget, Brits are concerned that their saving might be targeted. According to reports, Ms Reeves could lower the tax-free lump sum that savers can withdraw at 55.
The tax-free sum is currently £268,257, but fears that this could be lowered has led some to consider withdrawing their pensions before the budget. But expert have warned that doing so could be a "big mistake." Jason Hollands, managing director of wealth and accountancy firm Evelyn Partners, told the Telegraph: “Pulling out a quarter of your retirement fund in a panic, only to then leave it languishing in a cash savings account or investments that will be subject to tax – possibly increased tax in respect of capital gains and dividends – rather than leaving it to grow tax-efficiently within a pension, could prove a big mistake that you will come to regret.
” Helen Morrissey, head of retirement analysis at investment firm Hargreaves Lansdown, said: “Placing your pension lump sum in a bank account risks poor growth and its purchasing power being eroded over time by inflation. "Even if you were to take the money, regret your decision and try to reinvest it back into your Sipp, you risk falling foul of recycling rules that could see you clobbered with a tax charge – the potential for poor outcomes is huge.” There has also been speculation that the Government could hike employer national insurance contributions on pensions.
This has sparked anger from David Blunkett, former secretary of state for work and pensions under Tony Blair. In a letter published in the Times, he said: “It is one thing to increase the rate of national insurance, and quite another to levy this on employer pension contributions. “As the former work and pensions secretary who signed off, with Tony Blair and Gordon Brown, pensions auto-enrolment — which recognised the genuine crisis, for generations to come, in maintaining living standards in retirement — I would advise strongly against this.
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