There has been an increase in the number of people putting more money into their retirement savings pots, ahead of possible tax changes at October’s Budget, pension firms have reported.
Contributions to pensions currently benefit from tax relief at a “marginal rate” – up to a limit of £60,000 annually – meaning basic rate taxpayers get 20 per cent tax relief, higher-rate taxpayers 40 per cent and additional-rate taxpayers 45 per cent.
But this rule, which means contributing more into a pension can reduce your tax bill, is rumoured to be in line for a change in October’s Budget.
In the summer, it was widely reported that the Chancellor would be urged by Treasury officials to consider introducing a flat 30 per cent rate of tax relief, which would mean higher-rate payers, those earning over £50,271, will pay an effective 10 per cent tax charge on their pension.
interactive investor (ii), the UK’s second-largest DIY investment platform, says the number of customers with self-invested pensions contributing £60,000 to their pension is up two-thirds (64 per cent) this tax year so far, compared to the same period in the last tax year.
The figures follow other pension firms saying they have had an uptick in people paying in higher contributions head of a potential tax changes.
Investment platform AJ Bell also told i that it had seen increased contributions into self-invested personal pensions (Sipps) in the lead-up to the Budget.
Myron Jobson, senior personal finance analyst, interactive investor, said: “With the swirling rumours of changes to the UK pension regime, it’s understandable that many might feel a bit jittery about the future of their retirement savings. However, it’s crucial not to let speculation drive hasty and irreversible decisions when it comes to your pension.”
People contributing more into their pensions now may be hoping that these extra contributions avoid high tax bills if changes are made from the day of the Budget.
Though no changes are currently confirmed, and if changes did occur, they may only do so from the start of the next tax year, in April.
It comes after i reported that pension firms were seeing more people enquiring about withdrawing their pension lump sums ahead of the Budget.
Currently, retirees can take 25 per cent of their pension pot savings tax-free, up to the value of £268,275, but Labour has been urged to make changes to the rule.
The Institute for Fiscal Studies (IFS) has said it could be capped at £100,000 instead.
Experts have said change in this area is less likely than change to tax on contributions.
David Gibb, a chartered financial planner at Quilter Cheviot, said: If Labour are doing something on pension tax it’s more likely to be on tax relief on contributions into pensions, I can’t see them doing anything on the lump sum.”
