Investors are withdrawing money from their pension funds in increasing numbers, fearing potential tax increases in the next budget.
AJ Bell, one of the UK’s largest manual wealth managers, has reported a spike in pension withdrawals, as clients move to secure tax-free lump sums ahead of potential changes by the government.
Michael Summersgill, chief executive of AJ Bell, noted a “marked change in clients’ pension contributions and tax-free cash withdrawals” as speculation mounted that Chancellor Rachel Reeves might lower the current tax-free limit. Under current rules, savers aged 55 and over can withdraw up to 25% of their pension tax-free, with a cap of £268,275. However, rumors about the minimum number of customers have prompted them to avail this allocation ahead of the October 30 Budget.
As well as increasing withdrawals, some clients are accelerating pension contributions amid fears the government may change tax relief on pensions. An AJ Bell spokesperson said: “Many are taking advantage of the current system before potential changes come into effect.”
Although customer behavior has changed, Summersgill insisted the shifts do not materially impact AJ Bell’s overall performance, but warned that “these are important decisions for individual customers.” He called on the Treasury to implement a “pensions tax lock” in the Budget to ensure stability in pensions tax legislation for the remainder of this Parliament.
The uncertainty surrounding the budget has also affected other investment platforms. Vanguard has reported a significant rise in the number of clients taking full advantage of their tax-free allowances in ISAs and Self-Invested Personal Pensions (SIPS), as investors seek to protect their savings from potential tax rises.
Growing speculation about tax rises comes as Labor prepares to present its first budget since taking office in July. Both Reeves and Sir Keir Starmer have warned of “difficult decisions” ahead to plug the fiscal gap, with expectations that those on higher incomes could face additional burdens.
AJ Bell’s core platform business, which allows individuals to manage investments, stocks, Sipps and Isas, has continued to grow despite tax concerns. The platform attracted 66,000 new customers in the year to 30 September, taking its total customer base to 542,000. This growth helped increase assets under management by 22%, to a record £86.5bn.
AJ Bell’s smaller investment management division has also seen significant growth, with assets under management rising by 45% to £6.8bn over 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 after a trading update.
As the Budget approaches, the financial sector remains on edge, with investors closely monitoring any changes that may affect their pensions and savings.