Customers are withdrawing pension money over Budget uncertainty, warns AJ Bell

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Investment site AJ Bell has warned that uncertainty over potential tax changes in this month’s Budget has led to customers taking money out of their pension pots.

Michael Summersgill, chief executive, said speculation about changes to pensions taxation had sparked “a noticeable change in both customer contributions to pensions and tax-free cash withdrawals”.

He noted that pensions were “the primary retirement savings vehicle in the UK” and “customers are unsurprisingly sensitive to changes in their tax treatment”.

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

The government could also introduce a flat rate of tax relief on contributions to pension pots, which would hit higher-rate taxpayers harder.

“Whilst these behavioural changes do not have a material impact on AJ Bell’s business performance, they represent significant decisions for individual customers,” Summersgill said.

“We have therefore made representations to the Treasury calling for a commitment to a pension tax lock in the Budget, guaranteeing stability in key pension tax legislation for at least this parliament.”

AJ Bell told the Financial Times it had experienced an uptick in people contributing to their pension over rumours that the level of tax relief could change, as well as an increase in people withdrawing money because of concerns over the tax-free lump sum.

Despite the uncertainty, AJ Bell reported a 45 per cent jump in net customer inflows over the past year to £6.1bn, helping to boost the total assets held on its platform to a record £86.5bn.

The warning comes after a number of wealth managers told the FT they had contacted the Treasury to warn chancellor Rachel Reeves that people were pulling their money out of their pensions early due to the “uncertainty”.

Mark FitzPatrick, chief executive of wealth manager St James’s Place, said on Thursday that although the economic environment had improved since the beginning of the year, “there continues to be uncertainty in the outlook for consumers, savers and investors”, noting that “speculation around the forthcoming autumn Budget compounds this”.

Net inflows dipped to £890mn over the three months to the end of September, down from £910mn in the same period a year earlier. Its total assets still reached a record £184.4bn on the back of the inflows and the positive performance generated by its investment management.

Rathbones, another of the UK’s largest wealth managers, told the FT that “uncertainty around the outcome of the Budget continues to drive conversations with clients”, noting that the firm had received “considerable inquiries ahead of it on a number of points”, including pensions and potential changes to capital gains tax.

The chancellor is likely to target her expected increase in UK capital gains tax on the sale of shares, rather than second homes, according to former Treasury officials. 

“We have seen some clients taking some capital gains in advance, due to concerns of the rate being aligned to personal income tax, but clearly this all depends on individual client circumstances and discussions with their financial planners,” Rathbones said.