People rush to cash lump sums from pension before October rule change

People rush to cash lump sums from pension before October rule change
-Credit: (Image: Reach Publishing Services Limited)


There has been a surge in numbers of people taking pension tax-free lump sums due to Budget change fears. Labour Party Chancellor Rachel Reeves has been urged by a leading think tank to consider making changes to the pension tax-free lump sum in October's Budget.

Currently, retirees can take 25 per cent of their pension pot savings tax-free, up to the value of £268,275, but Labour has been urged to make changes to the rule. As a result, many have contacted their pension providers and financial planners to query whether it may be best to “crystallise” their funds now – before they potentially have to pay more tax.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, said: “With the swirling rumours of changes to the UK pension regime, it’s understandable that many might feel a bit jittery about the future of their retirement savings. However, it’s crucial not to let speculation drive hasty and irreversible decisions when it comes to your pension.

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“Pensions are inherently long-term investments, and their benefits, like tax relief on contributions and potential employer matches, are designed to grow over time. Knee-jerk reactions to unverified rumours can lead to costly mistakes, such as unnecessary charges or missed growth opportunities.

“Remember, any significant policy shifts typically go through extensive consultations and legislative processes. This means you'll likely have ample time to understand and adapt to any confirmed changes. It’s wise to keep an ear to the ground, staying informed about potential changes. But more importantly, base your decisions on solid financial advice and verified information.”

Steve Webb, partner of consultancy LCP, said: “I’m hearing from growing numbers of members of the public who are worried that their retirement plans, such as paying off a mortgage balance with a pension lump sum may be torn up at the last minute, and are thinking of bringing forward the point of accessing their pensions.”

Tom Selby, director of public policy at AJ Bell, added: “We have seen increased activity ahead of the Budget, both in terms of higher contributions and more people taking their lump sums.

“I suspect this will be the case industry-wide to varying degrees. It’s impossible to be absolutely certain of the motivations of people, but likely some will be taking action today due to fears that either tax relief or tax-free cash entitlements will be reduced on 30 October.”