Experts warn against making pension mistake ahead of Budget

Experts are warning savers against making a mistake with their pensions ahead of next week’s Budget as fears about tax rises swirl.

Savers are asking financial advisers whether to raid their pensions before the Budget, with financial experts telling Newspage that acting on rumours could cost them more in tax than it saves.

Clients are concerned about potential tax changes and are questioning whether to change their financial plans ahead of the Budget on 28 October, with pensions, inheritance tax, Capital Gains Tax (CGT) and mortgage costs among their biggest concerns, advisers said.

Experts said concern about possible tax rises was understandable, but warned that withdrawing pension money or changing long-term plans in response to speculation could have lasting financial consequences.

They said savers should review their pensions, wills, gifting arrangements and retirement plans so they are prepared for any confirmed changes. 

But taking irreversible action before the Budget details are known could trigger an unnecessary tax bill or leave them worse off.

Should I take my tax-free cash before the Budget?

Rikesh Bhatt, Founder and Financial Planner at Telford-based 8 Financial Planning, said pensions were the biggest concern, with clients who had planned to leave their pension to family now asking whether to draw it now.

He said: "Clients aren't really worried about one tax. They're worried about rushing into a decision they can't undo because of a rumour. The big one is pensions. With unused pensions coming into inheritance tax from April 2027, people who'd planned to leave their pension untouched as a family legacy are now asking if they should draw it down faster, take the tax-free cash early or start gifting.

“Add the usual chatter about tax-free cash being cut and you can see why some feel they need to act now. Business owners are asking similar questions about selling or passing on the business, with business relief already capped and Business Asset Disposal Relief less generous than it was. 

“My view is simple. Pulling money out of a pension early to beat a Budget that hasn't happened yet can easily cost more in income tax than it saves. The better move is to get your cashflow plan, gifting strategy and will in shape now, so you can act calmly once the detail is actually known."

Matthew Fleming-Duffy, Founder at Wimborne-based Harbour Home Finance, said clients were increasingly asking whether they should take action before any announcements were made.

He added: "I’m seeing older homeowners who are increasingly concerned about how changes to inheritance tax, pensions and property taxation could affect their retirement plans, particularly when much of their wealth is tied up in their home. 

"The inclusion of pension funds in inheritance tax calculations from April next year is prompting questions about whether to draw on pensions, pay off mortgages or use borrowing to access their property wealth instead. My concern is that speculation around the Budget can encourage people to make premature decisions. 

“It's important to consider all options, including conventional mortgages into retirement, retirement interest-only mortgages, lifetime mortgages and downsizing, before making decisions that can have lasting financial consequences.”

What should I do before the Budget?

Martin Rayner, Financial Adviser at Compton Financial Services, said clients were now prepared to take on more risk than ever before to cut their tax bills.

He commented: "Clients have always been most interested in how the Budget hits them personally. That hasn't changed in years. What has changed is the tone. More and more people talk about unfairness. They're working, contributing, doing their bit, and they feel the burden is landing overwhelmingly on them. The squeezed middle classes are frustrated and feel helpless.

“They know taxes are only heading one way, and as taxpayers it's them who will be hit, not those who pay no tax. People have long made the most of simple tax advantages like salary sacrifice and pensions. Now they're willing to take on more risk than ever before to reduce their tax bill. The rule never changes: the higher the taxes, the more people look for legitimate ways to reduce them."

Steven Greenall, Mortgage and Protection Advisor at Dunmow-based Protect & Lend, said that clients across the income spectrum were increasingly concerned about the cumulative impact of rising energy bills, mortgage rates and stealth taxes.

He commented: “'Where is it going to end' is a common phrase I'm hearing. Energy bills, mortgage rates, stealth taxes, it's very concerning for a lot of clients at whatever income spectrum.”