UK savers pulling cash from pensions ahead of budget, money managers say
British money managers are reporting a jump in people withdrawing cash from their pensions before this month’s budget, amid fears for their tax advantages as the government warns it needs to make “hard choices” to prop up public finances.
Most British savers can receive up to 25% of their pension as a tax-free lump sum. Some experts on fiscal policy have speculated that Rachel Reeves, the finance minister, might reduce the amount that can be withdrawn tax-free, a potential motive for savers to withdraw funds in case the rules change.
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Six of 10 of Britain’s big wealth managers, including Schroders (SDR.L), opens new tab and Aberdeen (ABDN.L), opens new tab, contacted by Reuters said they had seen increases in clients withdrawing tax-free lump sums from pensions in recent months, citing budget fears.
“This could well be the easiest tax relief to go for because it does benefit the most wealthy,” said Tom McPhail, a Pensions Policy Institute governor, who has publicly said he backs the opposition Conservative party. If the tax relief was limited to the first 100,000 pounds, a lot of private sector workers would be fine, he added.
Private bank Arbuthnot Latham, which typically serves richer clients, told Reuters pre-budget anxiety had pushed withdrawals to record levels – up 300% by volume year-to-date compared with the whole of 2024.
“This year has seen a huge increase in clients taking lump sums out relative to their financial needs,” said Eren Osman, managing director of wealth management at Arbuthnot Latham.
AJ Bell (AJBA.L), opens new tab said the volume of requests to withdraw pension cash in October and September was up on the same period last year and about three times higher than in 2023.
Most of the managers did not quantify the increase or clarify how this compared with past periods.
Quilter (QLT.L), opens new tab said the spike had been significant enough for it to have shared the data with the government to show the impact of budget speculation, but was not as large as in the run-up to the 2024 budget. Phoenix (PHNX.L), opens new tab said the rise was “relatively modest” and comparable to other busy periods.
TAX-FREE LUMP SUMS DISPROPORTIONATELY BENEFIT THE WEALTHY
In a rare pre-budget speech on Tuesday, Reeves paved the way for broad tax rises to avoid a return to “austerity”.
The Institute for Fiscal Studies think tank said last year that tax-free pension withdrawals disproportionately benefit the wealthiest and cost the exchequer 5.5 billion pounds annually.
Britain’s finance ministry did not respond to a request for comment on whether it is considering changing pension taxation.
The CEO of Legal & General (LGEN.L), opens new tab, Antonio Simoes, told Reuters last month that tax changes which deterred pension saving would be “really concerning for the country”. A company spokesperson declined to comment further.
Withdrawals from pension pots were already on the rise this year. The amount withdrawn soared 76% in the six months to March versus a year earlier, Financial Conduct Authority data show.
Financial advisers typically caution against removing money from retirement pots because investment gains elsewhere are usually taxed.
Rathbones and Evelyn Partners, two of the other wealth managers, said they were fielding more requests for withdrawals but were working through options with clients. ($1 = 0.7451 pounds)
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