A stark pensions warning has been raised as the Labour government’s Chancellor, Rachel Reeves, draws up plans that could see retirement funds take a hit.
UK households may feel the pinch if they shuffle their pension savings in anticipation of Reeves’s suspected Autumn Budget tax crackdown, risking substantial penalties in the process.
Experts are sounding the alarm that Reeves could clamp down on pension tax relief. As things stand, pensioners can withdraw 25 percent of their nest egg free from tax, capped at £268,275, yet this generous allowance may be under threat after October 30.
For those considering relocating their pension wealth, there could even be a possible punitive 70 percent charge based on the destination of their transferred assets.
Head of retirement analysis at Hargreaves Lansdown, Helen Morrissey, has issued a cautionary note to individuals on the brink of drawing funds from their pension pot.
She commented: “Ripping money out of a pension now potentially deprives it of future investment growth and could leave it subject to a whole host of taxes that it otherwise might not be, such as inheritance, capital gains, dividend and income tax.”
Morrissey added: “We could also see people try to reinvest surplus tax-free cash they’ve taken back into their SIPP and potentially fall foul of recycling rules that clobber them with a fine,” reports Birmingham Live.
Those who flout the pension recycling regulations might face stiff HMRC charges, including a 40 percent scheme member charge, an additional 15 percent member surcharge, along with a 15 percent scheme sanction charge levied on the pension provider itself.
You could find yourself on the hook for a hefty charge if you’ve intentionally set out to recycle your pension savings, especially if you surpass the annual tax-free threshold of £7,500, funnel more than 30 percent of this tax-exempt cash into your pension during the current fiscal year and the two either side, or if your contributions exceed your usual input by over 30 percent.
Ms Morrissey warned: “Even if the money is put in a bank account, there is a huge risk its purchasing power is eroded over time by falling interest rates.”
She further lamented: “This ongoing speculation about potential changes to such a fundamental part of the system is hugely damaging.
“People need certainty to make long-term plans and they just don’t have that right now. The sooner changes such as raiding tax-free cash, can be ruled out, the more people can focus on the long term again.”
