Wealth managers warn Rachel Reeves of pensions withdrawals rush ahead of UK Budget

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Some of the UK’s largest wealth managers have warned chancellor Rachel Reeves that people are pulling money out of their pensions early because of “uncertainty” over potential tax changes in the Budget.

Wealth manager Quilter and investment platforms AJ Bell and Hargreaves Lansdown are among the companies highlighting that an increasing number of people are considering withdrawing from their pension pots over speculation that the government could dilute pension tax relief.

Steven Levin, chief executive of Quilter, which manages £113bn, sent a letter to the Treasury on Wednesday to flag that the wealth manager was “experiencing a significant increase in calls from customers wanting to adjust their retirement plans”.

He said this was “a direct result of the recent Budget warning, which indicated ‘painful’ changes to taxation but left a gap in information other than ruling out changes to major taxes”.

The Quilter letter added: “The knock-on uncertainty around changes to pension tax reliefs, tax-free cash and possible amendments to pension contributions is causing anxiety and confusion for those trying to plan their financial futures.”

Investment experts have warned of a potential tax raid on pensions in this month’s Budget as the UK government seeks to close a £22bn hole that it has identified in the public finances.

Individuals can currently access 25 per cent of their pensions tax-free up to a cap of £268,275 from the age of 55. The Fabian Society, a left-wing think-tank, has urged the government to drop the tax-free limit to £100,000.

But once the tax-free lump sum has been withdrawn, money cannot be put back in — sparking concern among financial advisers and wealth managers.

AJ Bell, one of the UK’s largest investment sites, told the Financial Times it was also sending a letter to the Treasury on the issue. AJ Bell said it had warned the Treasury it was concerned that customers were making decisions on their pensions based on speculation and uncertainty.

“Once you’ve taken your tax-free cash you can’t put the toothpaste back in the tube and, assuming the chancellor doesn’t pursue a disastrous raid on tax-free cash, those people may find they’re in a worse position long term,” said Tom Selby, public policy director at AJ Bell. “The chancellor should use her inaugural Budget to publicly commit to a pact on pension taxation.”

One of the UK’s largest workplace pension providers, which declined to be named, said it had also seen “an increase in tax-free cash withdrawals”. 

Another source in the industry said the volume of inquiries about pension withdrawals was similar to the surge in questions about personal finance issues experienced at the tax year-end in April.

Pension providers including insurance groups Aviva, Royal London and Standard Life, and wealth managers including Evelyn Partners have experienced a surge in inquiries from individuals considering taking their tax-free lump sums ahead of the Budget, in case the government reduces this limit, according to people familiar with the matter.

Of all potential budget measures, “this is certainly one of the main areas causing anxiety”, said Jason Hollands, managing director at Evelyn Partners. He said there was a “spike in inquiries and conversations” from concerned clients about the issue.

Quilter’s Levin said the current uncertainty was “driving knee-jerk decisions” that could jeopardise long-term financial security.

“Our financial planners are receiving calls from anxious clients, many of whom are at risk of making hasty adjustments to their retirement plans without fully understanding the potential consequences.”

The government could also decrease the maximum amount individuals can contribute to their pensions each year without incurring a tax charge, which was increased from £40,000 to £60,000 in April last year. 

The Treasury declined to comment.