Investors are rushing to cash out pension funds as they fear tax increases in the next budget
Investors are withdrawing money from their pension pots at increasing rates, fearing that a tax could be in the next budget.
AJ Bell, one of the UK’s largest DIY wealth managers, has reported a huge increase in pension withdrawals, as our clients try to secure large sums of money tax-free ahead of potential government changes.
Michael Summersgill, chief executive of AJ Bell, noted a “significant change in both client contributions to superannuation and tax-free withdrawals” as he speculated that Chancellor Rachel Reeves might lower the current tax-free limit. Under existing rules, savers aged 55 and over can withdraw up to 25% of their pensions tax-free, with the cap set at £268,275. However, rumors of a lower price have led many customers to cash in on the money ahead of the October 30 budget.
Despite the increase in withdrawals, some customers are speeding up pension contributions due to concerns that the government may change the tax relief on pensions. “Many are using the current system before any changes are made,” said spokesman AJ Bell.
Despite the change in customer behavior, Summersgill stressed that the shifts have no material impact on AJ Bell’s overall performance but cautioned that “these are important decisions for individual customers.” He asked the Ministry of Finance to use the “pension tax freeze” in the budget to ensure stability in the pension tax law for the remainder of this parliament.
Budget uncertainty has also affected other areas of investment. Vanguard has reported an increase in customers making the most of their tax-free allowances in Isas and personal invested pensions (Sipps), as investors seek to protect their savings from potential tax rises.
The increase in tax hike speculation comes as Labor prepares to present its first budget since taking office in July. Both Reeves and Sir Keir Starmer warned of “difficult decisions” ahead to plug the gap in public finances, with high earners expected to face increased burdens.
The core business of AJ Bell’s platform, which allows people to manage investments, shares, Sipps, and Isas, has continued to grow despite tax concerns. The platform attracted 66,000 new customers in the year to September 30, taking its total customer base to 542,000. This growth helped drive a 22% increase in assets under management, reaching a record £86.5 billion.
AJ Bell’s smaller investment management division has also seen strong growth, with assets under management up 45% to £6.8 billion in the past 12 months. Analysts at Jefferies described the company’s fourth-quarter performance as “strong,” although AJ Bell shares fell 5p, or 1%, to 476p following the trading update.
As the budget approaches, the financial sector remains on hold, as investors watch closely for any changes that could affect their pensions and savings.
