Pension savers – Is Osborne planning to hit hard in the Budget? It only feels like New Year has arrived, but March is on its way – and with it, the Budget. Yet with all of the EU stories taking precedent over other financial news, it’s hard to spot things that affect people at home, with or without our place in Europe; however, it appears that one issue that has largely stayed under the radar is a possible issue facing pension savers, which could be quite the shock to many, should the Liberal Democrat pensions minister be believed.
In an interview this weekend (February 20th) with the Sunday Times, Steve Webb claimed that George Osborne will drop the 25% tax-free lump sum afforded to pension savers once he delivers the red briefcase in March. It could become the latest in a long line of amendments to retirement savings pots that could leave countless people in the UK worse off.
As it stands, tax-free lump sums are a major bonus for those saving into pension savers; it effectively allows people at the age of 55 to take the first 25% of their pot without tax. Speaking to the paper, however, Webb said that it would be axed for those who have as little as ten years left before retirement. It could also put an end to building up any more entitlement to tax-free money for those not affected, too.
Instead, Webb believes an ISA-style savings system would be put into place. He said: “Under the current system […] a quarter of the money in your pension never gets taxed at all under the current rules.
“But with a pensions Isa, this tax break quietly disappears. Since all of the money that goes in to a pensions Isa has already been taxed, there is no equivalent of the tax-free lump sum.
“Given that the tax-free lump sum costs the chancellor around £4bn per year in lost revenue, it is easy to see why he might like to get rid of it. It is remarkable to think that one of the most popular and best understood parts of the tax system — the tax-free lump sum — could be on the brink of extinction without anyone noticing.”
Though many may be keen to discredit Webb’s claims, his position with pensions firm Royal London has given him access to many people working closely with the Treasury – and that the government sees savings of up to £4 billion being made on the change in policy.
Nonetheless, when contacted by the Sunday Times, the Treasury denied that any decisions had been made; whatever the decision, it seems clear that people need to consider their financial security ahead of retirement.