Savers are bracing themselves for bad news in the upcoming Budget, as rumours swirl that Chancellor Philip Hammond is set to slash the tax relief on pension savings.
Ahead of the official unveiling of the Budget on 29 October, a series of press reports have claimed that Hammond will cut the current tax-free allowance on pension savings.
At present, savers can shield up to £40,000 per year into a pension fund without paying tax. This annual allowance can also be carried forward for up to three years, meaning that some savers could potentially shelter up to £120,000 from taxation in one year.
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This policy has been particularly popular with over-55s, who can release equity before retirement, and divert it into a savings account without losing tens of thousands of pounds in taxation.
However, reports have suggested that Hammond plans to either reduce the annual limit, or remove the tax relief incentive entirely.
In response, some pension funds have noticed a surge in contributions, with Zurich revealing that there was a 98 per cent increase in cash flowing in to pension accounts in September, compared to the annual average. Zurich also found that the average value of one-off pension contributions has risen by 161 per cent.
“Investors are clearly worried that the government could slash the savings limit in the upcoming budget and are rushing to top-up their pots,” said Alistair Wilson, head of retail platform strategy at Zurich.
“The amount of money flowing into pensions doubled last month – even outstripping peaks seen ahead of tax-year end.
“To soften the blow of any lower annual allowance, the Chancellor should consider increasing the number of years people can carry forward unused allowances, or introducing an age-related allowance that rises as consumers near retirement.”