AJ Bell has called for the Government to commit to a Pensions Tax Lock, pledging not to change the fundamentals of the pension tax system in this parliament
Rachel Vahey, head of public policy at AJ Bell, comments: “Speculation about the future of pension taxation often sees bad actors trying to take advantage of people. HMRC has acknowledged the danger this can increase people’s susceptibility to pension scams, yet another clear sign that we urgently need a Pensions Tax Lock to put an end to dangerous rumour and speculation. The run up to the Budget was rife with speculation that either pensions tax relief or pensions tax-free cash would be on the chopping block come 30 October. In the end, both pensions tax features remained untouched, but by then, for some, the damage had already been done.
“Officials in HMRC should be reporting their concerns back to colleagues in the Treasury, with the increased risk of scams providing more evidence of the urgent need for the Chancellor to commit to a Pensions Tax Lock. Guaranteeing not to meddle with the two biggest pension saving incentives – tax free cash and income tax relief on contributions – would put an end to rumours and help protect consumers. Ahead of the Budget, pension providers saw a marked increase in the number of people requesting tax-free cash, probably earlier than planned. HMRC is right to warn early access to pensions is rarely in anyone’s long term financial interests. Any decision to take your money could be damaging and may result in people losing out in the long term.
“There is no doubt pension scammers will have used this confusion to their advantage, to encourage some to access their money earlier. Pre- Budget speculation was allowed to run rife, but could have been avoided in the first place with a public commitment to tax stability. While these types of scams have always existed, rumours that the government could take away rights to tax-free cash add fuel to the fire, providing scammers with a tool they can leverage to encourage people to take action quickly on the bogus premise that it’s a way to sidestep a tax hit from the Chancellor. In reality, if you take your pension before age 55 you’re likely to end up with a 55% tax charge for ‘unauthorised payment’, as well as losing some or all of your pot to the pension scammers. “If the Government committed to a Pensions Tax Lock, saying explicitly they will not change the fundamental tax features of pensions, they can give pension savers a guarantee of stability on pension taxation allowing them to plan for their long-term future with confidence. And, importantly, avoid a repeat performance come the next fiscal event.”
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