Labour faces pension exodus as savers make 'knee-jerk' decisions over tax hike fears

Experts are warning that the government is facing a pension exodus

Labour is grappling with a potential pensions exodus as individuals rush to withdraw money ahead of the Budget due to tax concerns. The government has been alerted that pensioners are taking out money prematurely in anticipation of possible tax changes in the Autumn Budget.

Wealth manager Quilter, along with investment platforms AJ Bell and Hargreaves Lansdown, have warned of excessive "uncertainty" regarding imminent changes. They pointed out that this uncertainty is leading more people to contemplate withdrawing from their pension pots amid predictions of a potential reduction in pension tax relief.

Steven Levin, CEO of Quilter, which manages £113bn, sent a letter to the Treasury earlier this week. In it, he noted that the wealth manager was "experiencing a significant increase in calls from customers wanting to adjust their retirement plans."

According to the Financial Times, Mr Levin attributed this to " the recent Budget warning, which indicated 'painful' changes to taxation but left a gap in information other than ruling out changes to major taxes".

Investment experts have raised the alarm regarding potential tax complications anticipated in this month's budget, against the backdrop of repeated government suggestions of a £22bn shortfall in public finances. Speaking to the paper, Tom Selby, public policy director at AJ Bell, commented: "Once you've taken your tax-free cash you can't put the toothpaste back in the tube.", reports the Express.

He cautioned that rushing decisions could result in individuals being financially worse off if their worst fears are not realised and pleaded for a 'pact' on pension taxation given the uncertainty looming for retirees.

In a similar vein, Jason Hollands, managing director at Evelyn Partners, talked to the FT about pension tax being "one of the main areas causing anxiety."

He elaborated: "Our financial planners are receiving calls from anxious clients, many of whom are at risk of making hasty adjustments to their retirement plans without fully understanding the potential consequences."

Further adding to the sense of urgency, Quilter's Levin informed the Financial Times about "driving knee-jerk decisions" amongst people worried about the fate of their pensions, saying: "Our financial planners are receiving calls from anxious clients, many of whom are at risk of making hasty adjustments to their retirement plans without fully understanding the potential consequences."

The Treasury has chosen not to comment. Simultaneously, a promising new member of the Labour MPs today supported the Chancellor's stance on dismissing a wealth tax for the richest.

Torsten Bell, former Treasury official and chief executive of the Resolution Foundation, highlighted concerns about the feasibility of a wealth tax, stating: "On the tax side it is very fashionable on the left to say 'let's just have a wealth tax'," and then adding, "For some of us who have spent 20 years working on tax policy, I think that is something that is exciting for them to write in books and not very useful in terms of helping govern the country. There are two reasons why that is."

Elaborating on the issues, he said: "The short reason why that doesn't work in the UK is two words, Jeff Bezos. He does not live in the UK."

Bell continued by noting, "And, yes, we do have some very rich people. But our wealth is nowhere near ... we don't have the globally rich people that the US, particularly, has lots of."

He concluded with a point about practicality: "You will have a brand new wealth tax and you are not going to bring in really significant revenues in the UK."

Finally, he expressed frustration with simplistic solutions, remarking, "Secondly, doing it is really hard. I am fed up of people saying Government should do this then not getting remotely interested in the hard job of getting homes built... taxes that actually raise money."