People raiding pension pots over Budget tax fears

Rumours of a tax rise in the Budget have encouraged 16% of people to plan to raid their pension pots for tax-free cash, according to new research. Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said ripping tax free cash from a pension “is a risky business.” The research asked whether people had taken specific steps regardless of the Budget, whether they’d already taken action because of Budget worries, or whether they planned to ahead of the Budget. It showed a fifth of people (19%) were planning to open a cash ISA, slightly less (18%) to put money in a stocks and shares ISA while 17% said they would paying more money into a pension to benefit from the tax relief. The fifth most popular approach was drawing tax free cash from a pension. Almost one in ten (8%) said they were going to do this anyway, but an additional 16% said they have been pushed into it by fears that the Budget could impose a limit on tax-free cash. Helen Morrissey said: “Worryingly, given the popularity of the move among additional and higher rate taxpayers, it seems as though many are doing this before retirement.” The survey showed that higher rate taxpayers take steps more often anyway, but the Budget has been most likely to spur them to pay into a stocks and shares ISA or cash ISA (45% each). At least a quarter of additional rate taxpayers would have done these things regardless, but the Budget was most likely to persuade them to pay into a pension or give money away to family (39% each). Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “People aren’t taking Budget threats lying down. They have the chance to make changes ahead of the announcement, that will help protect them from any tax threats that might be lying in wait, and they’re grabbing it with both hands.” The most common step overall was to open a cash ISA. Higher savings rates have been pushing more people into paying tax on their savings, so it was already something 23% of people were doing, according to the research. The second most common approach was to pay into a stocks and shares ISA. Overall a third of people are set to do so this year (32%), and while 14% said they’d do it irrespective of Budget threats, 18% have been specifically spurred into action by rumours of potential tax rises. Third on the list was to pay extra into a pension, which more than a quarter of people are doing – 17% of whom have been persuaded to do so by threats of changes to pension rules. The fourth most common move was to pay into a Junior ISA for a family member. The sixth most popular move was to give money away to family members. Only 8% of people were going to do so this year anyway, but an extra 15% have been persuaded to by rumours of Budget tax hikes, changes to nil rate bands or tweaks to rules around exemptions, according to HL’s research. Figures taken from a survey of 2,000 people by Opinium for HL.

People raiding pension pots over Budget tax fears

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