Pension Savers Rush to Withdraw Funds Amid Tax Change Speculation

As speculation mounts that Chancellor Rachel Reeves may lower the current tax-free pension withdrawal limit, Michael Summersgill, the chief executive of AJ Bell, reported a “noticeable change” in customer behavior. Many clients are withdrawing cash from their pensions and increasing contributions in anticipation of potential changes to tax relief regulations.

Under existing guidelines, savers aged 55 and older can withdraw up to 25% of their pension pot tax-free, capped at £268,275. However, with rumors swirling about a possible reduction in this cap, many clients are choosing to cash in on their allowances before the upcoming budget on October 30.

In addition to higher withdrawal rates, AJ Bell noted that some customers are hastening their pension contributions out of concern that the government may alter tax relief on pensions. An AJ Bell spokesperson stated, “Many are taking advantage of the current system before potential changes come into effect.”

Despite the noticeable shift in customer activity, Summersgill emphasized that these changes do not significantly affect AJ Bell’s overall performance. He urged the Treasury to implement a “pension tax lock” in the budget to ensure stability in pension tax legislation for the remainder of this parliamentary session.

The uncertainty surrounding the budget has also impacted other investment platforms. Vanguard reported a spike in customers maximizing their tax-free allowances in Individual Savings Accounts (Isas) and Self-Invested Personal Pensions (Sipps) as investors seek to protect their savings from potential tax increases.

The speculation of tax hikes coincides with Labour’s preparation to deliver its first budget since taking office in July. Both Reeves and Labour leader Sir Keir Starmer have indicated that “difficult decisions” lie ahead to address a gap in public finances, with expectations that higher earners may face increased financial burdens.

Despite these tax anxieties, AJ Bell’s core platform business, which facilitates investment management, Sipps, and Isas, has continued to grow. The platform attracted 66,000 new customers in the year ending September 30, bringing its total client base to 542,000. This growth has contributed to a 22% rise in assets under administration, which reached a record £86.5 billion.

AJ Bell’s smaller investment management division also experienced substantial growth, with assets under management increasing by 45% to £6.8 billion over the past year. Analysts at Jefferies characterized the company’s fourth-quarter performance as “solid.” However, shares of AJ Bell dipped by 5p, or 1%, to 476p following the trading update.

As the budget approaches, the financial sector remains on high alert, with investors closely monitoring any developments that could impact their pensions and savings.