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Pension savers have been warned against making hasty decisions to avoid being hit by potential tax changes in the Autumn Statement. Chancellor Rachel Reeves will unveil her latest financial policies on November 26, which may include changes to pensions. However, specialists have advised people against relocating their funds prematurely or they could lose out on many thousands of pounds.
Simon Harrington, head of Public Affairs at trade association PIMFA, said: "Endless speculation about changes to pension rules - particularly the future of the 25 percent tax-free lump sum - is already having a real and detrimental impact on consumer behaviour. While we recognise that managing speculation is outside the Government's direct control, every Budget season brings a slew of articles predicting changes to pensions taxation, but in the last two years this has become more acute than ever."
Typically, you can withdraw up to 25 per cent from your pension as a tax-free lump sum, up to the value of £268,275. Should you extract a lump sum exceeding your allowance, you must pay income tax on the extra amount.
FCA statistics reveal that in 2024/2025, the number of pension schemes accessible for drawdown where only the lump sum was withdrawn nearly doubled compared to five years previously. Mr Harrington said: "This shows a clear trend, that people are pulling money out earlier, and in greater sums, than they otherwise might - behaviour that could have serious long-term consequences.
"Taking the 25 percent reduces the invested balance, depriving the consumer of much-needed investment growth in the ten years or more up to their state pension age."
The group calculated how much you could lose based on average pension figures. ONS figures suggest the average person aged 55 to 64 has £137,800 in private pension savings.
If you were to take out your full 25 percent lump sum, in 10 years' time at a six percent growth rate, your pot would be worth £185,084, compared to £246,779 if you had left the amount in. This means you could lose out on £61,695.
From the age of 55, you can start drawing down from your pension, while the state pension can be claimed from age 66. The state pension age is set to gradually rise to 67 starting next year.
Mr Harrington mentioned another reason to hold off moving around your funds and to see what policies are set out in the Autumn Statement. He said: "Even if reforms were decided upon, changes would likely not take effect immediately, giving savers time to adjust.
"But speculation alone is already driving short-term decisions that could leave people worse off in retirement.
"This uncertainty, coupled with actual policy interventions such as the plan to levy inheritance tax on pension funds runs the risk of further discouraging people from in investing in pensions." In the Autumn Budget of 2024, Labour unveiled plans to make people liable to pay more inheritance tax, including making unused pensions subject to the tax from April 2027.