Labour leadership hopefuls urged to rule out pension tax raid
Labour’s leadership hopefuls have been urged to rule out a tax raid on pensions to show they are ‘firmly on the side of people who do the right thing’.
Savings and investment firm AJ Bell said ‘whoever is leading the country’ should reassure workers that their retirement pots will not be targeted by the taxman.
The comments came as Labour wannabes including Andy Burnham and Wes Streeting vie to replace Keir Starmer as Prime Minister – with the future of Chancellor Rachel Reeves also in doubt.
It is feared that a PM and Chancellor in search of cash ahead of a Budget later this year could target the pension contributions of higher earners and the amount savers can withdraw tax free.
Pension savers can withdraw up to 25 per cent of their nest eggs tax-free from the age of 55 up to a maximum of £268,275.
Rumours that Reeves was plotting an attack on the tax-free lump sum proved particularly damaging ahead of recent Labour Budgets as savers rushed to withdraw money from their retirement funds.
Three of a kind: Labour wannabes including Andy Burnham and Wes Streeting are vying to replace Keir Starmer as Prime Minister
Reeves eventually decided against any rule change – leaving those who acted worse off.
AJ Bell has called for the government to commit to a Pension Tax Lock to rule out any such move in future.
With civil war engulfing the Labour party, Rachel Vahey, head of public policy at AJ Bell, said: ‘Whoever is leading the country later this year has an opportunity to bring certainty and clarity to the debate around the future of pensions.
‘Although both pension tax-free cash and tax relief on pension contributions came out of last year’s Budget unscathed, many people made rushed, often irreversible, decisions based on pure speculation, and there remains a huge risk that the same rumours will re-emerge ahead of this year’s Budget.
‘Whoever becomes the next prime minister doesn’t need to be a passenger when it comes to pension tax speculation – they could take a firm grip by committing to stability over the long term.
‘A pledge of this nature would cost the government nothing and show it is firmly on the side of people who do the right thing and save for their financial future.’
In the Spring Statement in early March, Reeves built in £23.6billion of headroom in a bid to protect the nation’s finances against shocks.
However, a large chunk of that has already been eroded as the conflict in the Middle East and fears of a lurch to the Left under a new Labour leader sent borrowing costs soaring.
Goldman Sachs estimates that some £12billion of the fiscal buffer has been eroded while the Resolution Foundation puts the figure at £16billion.
This could leave whoever is Chancellor at the time of the next Budget in need of extra cash – particularly as pressure mounts on the government to raise defence spending.
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
Freetrade
Freetrade
Investing Isa now free on basic plan
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.