The Chancellor is set to announce his Budget on March 3, and a number of tax reforms are on the table as the Government looks to revive the UK economy. One expert sounded the alarms last week, hinting that Mr Sunak could implement policy that will be costly for some pensioners. Tim Stovold of Moore Kingston Smith, an accountancy firm, said the 25 percent tax-free pension cash benefit was at risk and was “too generous”, adding that it is “inevitable” the Government would cap the amount savers could withdraw under the rule. He did add, however, that the move may not come in this Budget.
Mr Stovold told the Telegraph: “The risk of this happening eventually is high. It may not be in this Budget though, as it doesn’t immediately collect large amounts of tax.”
He nevertheless urged people to take their tax-free cash before Chancellor Sunak makes changes.
Mr Stovold added: “Your plans could be stymied and it would be a shame to add a couple of years to your working life because the taxman is taking more.”
Reports suggested that Ministers could limit the relief to £125,000, so anyone with a pension worth less than £500,000 would not be impacted but those with bigger pots would pay more income tax.
In September, Carla Brown of St James’s Place said she was advising her clients to put as much as they could possibly afford into their pension in case the tax relief is slashed.
She said: “Higher earners who have not made use of the full quota over the past three years can carry forward any unused allowance to save more.
“[Governments] have considered slashing the higher 40 percent and 45 percent rates of pension tax relief before, but now more than ever could be the time for them to finally do it.”
The maximum amount that can be saved into a retirement pot tax-free each year is £40,000, with tax relief due at the same rate you pay income tax, although the limit tapers off for those earning more than £240,000.
Steven Cameron, pensions director at Aegon, also warned recently that savers may want to take action to avoid future bills.
READ MORE: Inheritance tax: ‘Hugely efficient’ way to save 90% on tax
The rumoured tax changes come as the UK economy starts to stabilise after months of lockdown.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, revealed data that suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
Last year, the UK economy shrunk by 10 percent, the biggest slump in 300 years.