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IFAs receiving countless calls from clients "terrified" about 25% tax-free cash lump sum ahead of Budget

ended 07. October 2024

Financial advisers have said they are receiving growing numbers of calls from clients wanting to take the 25% tax-free cash lump sum from their pension ahead of the Autumn Budget.

Mark Scott, Director and IFA at Positive Advisers, said: “I've been getting many calls from clients wanting the 25% tax-free cash from their pension. They are terrified that Rachel Reeves will start taxing this feature of the current pension system. If she does make changes, they will most likely start at the beginning of the next tax year. IFAs would be inundated with calls for help if this change is enacted, and the markets could see massive withdrawals, sparking a fall in values in the sell-off."

Like Scott, Colin Low, Managing Director at financial advice firm, Kingsfleet, has also had lots of calls from concerned clients: "This is proving to be a very difficult situation. We have had numerous calls from clients convinced that the new Government will be reducing the access to tax-free cash on personal pensions. It's important to state that this is only hearsay and that is no way to shape the advice given to clients on one of the biggest financial planning decisions they will make. Therefore, should clients be encouraged to take their full current tax-free cash entitlement, aware that this takes away the possibility of it growing in the future, or should they hold fast and wait for the Budget on 30th October, knowing that they could lose all or some of their remaining tax free cash? For the Government to continue to allow these rumours to persist is really poor. We are regulated in order to encourage wise long-term decisions with money but we are caught between a rock and a hard place here."

Ross Lacey, Director and Chartered Financial Planner at Fairview Financial Management, advises caution before people act: "We've had a couple of questions on this from clients but our advice has been not to make any rash decisions based on ifs, buts and maybes. Historically, any changes made by government on things like this have included transitional protection, so that those who would already be affected by the new rules keep whatever rights they currently have. Examples of this have been where the "lifetime allowance" was previously reduced in 2012, 2014 and 2016 and also tax-free cash entitlements of more than 25% available to some people with pensions started prior to 2006. Seeing as there's a greater emphasis on people providing for their own retirement and pensions already suffer with an image problem, we think it would be madness to make any changes to pensions that make them less attractive."

The views of five financial services experts are below.
 

5 responses from the Newspage community

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Colin Low
Managing Director at Kingsfleet
This is proving to be a very difficult situation. We have had numerous calls from clients convinced that the new Government will be reducing the access to tax-free cash on personal pensions. It's important to state that this is only hearsay and that is no way to shape the advice given to clients on one of the biggest financial planning decisions they will make. Therefore, should clients be encouraged to take their full current Tax Free Cash entitlement, aware that this takes away the possibility of it growing in the future, or should they hold fast and wait for the Budget on 30th October, knowing that they could lose all or some of their remaining tax free cash? Full disclosure, this impacts me as well. I turned 55 last year so can now access my fund but what should I do?
For the Government to continue to allow these rumours to persist is really poor. We are regulated in order to encourage wise long-term decisions with money but we are caught between a rock and a hard place here.
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David Stirling
Independent Financial Advisor at Mint Wealth
Over the past year we have already seen business owners hitting 55 and looking to take their 25% tax-free, simply to help with business cash-flow due to the increases in taxation. Other limited company directors have also paused contributions for the same reason. If the incoming news of the Budget is true, and "tax-free cash" will be no more, there will certainly be a huge clamour from those who can, to take what they can as soon as possible.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
We've had a couple of questions on this from clients but our advice has been not to make any rash decisions based on ifs, buts and maybes. Historically, any changes made by government on things like this have included transitional protection, so that those who would already be affected by the new rules keep whatever rights they currently have. Examples of this have been where the "lifetime allowance" was previously reduced in 2012, 2014 and 2016 and also tax-free cash entitlements of more than 25% available to some people with pensions started prior to 2006. Seeing as there's a greater emphasis on people providing for their own retirement and pensions already suffer with an image problem, we think it would be madness to make any changes to pensions that make them less attractive.
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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
As the UK braces for Chancellor Reeves' ‘painful’ budget, the sun may be setting on the golden age of pensions with a tsunami of anxious savers threatening to breach the dam of pension stability. With Labour's commitment not to raise income tax, NI, or VAT, pension pots are in the crosshairs, with a change that could reduce the appeal of pensions potentially discouraging long-term saving. Furthermore, the potential implications of a sudden withdrawal rush are significant, with a substantial sell-off reducing liquidity in typical pension assets. This could drive down valuations in the short term, impacting the broader investment landscape. Of course, tampering with such a popular feature of the pension system would be politically risky, yet the mere possibility has been enough to spark action among savers. As the budget approaches, the industry finds itself in a precarious position, with the current uncertainty surrounding tax changes creating a powder keg of anxiety among retirees.
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Anita Wright
Independent Financial Adviser at Ribble Wealth Management
I've had a number of clients call me with this concern. However, the key issue is that the amount of revenue it generates is nowhere near as significant as either the introduction of a flat-rate tax of 30% on pension contributions (as rumoured) or a substantial reduction of the annual allowance to, say, £30,000 per year. Futhermore, abolition of tax free cash cannot be applied retrospectively, as it would penalise individuals who have acted responsibly by leaving their tax-free cash intact, while others have already taken theirs. At the very least, this would clearly violate human rights treaties. I seriously question the competence of any Chancellor who would introduce such legislation retrospectively, as it would undoubtedly be legally challenged (likely successfully) at great expense to the UK taxpayer. This is yet another poorly thought-out idea from the IFS, who really should know better. I suspect this will not see the light of day.