Savers across the UK are rushing to boost their pension contributions amidst fears of potential tax relief changes in the upcoming Budget.
The shift in saving behaviour has been primarily driven by concerns over what changes Chancellor Rachel Reeves might introduce in her Autumn Budget on October 30.
There has reported an unprecedented surge in Self-Invested Personal Pension (SIPP) contributions, Bestinvest research showed.
The firm saw a tenfold increase in September compared to the same month last year, with contributions also quadrupling from August this year.
Alice Haine, personal finance analyst at Bestinvest, said: “Savers, fearful of any radical new pension rules, acted in a similar way to the end of the tax year as speculation that Reeves would tinker with pensions in her first major fiscal statement amplified over the summer.”
The surge in pension activity extends beyond contributions. Bestinvest also reported a doubling of pension withdrawal requests in September compared to the same month in 2023.
This increase was primarily driven by those aged 55 and over accessing their 25 per cent tax-free lump sum, as uncertainty prompted drastic changes in pension saving behaviour.
Rumours that pension tax relief might be capped at a flat rate of 30 per cent had a significant impact on savers’ decisions
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Rumours that pension tax relief might be capped at a flat rate of 30 per cent had a significant impact on savers’ decisions. However, recent reports suggest the Chancellor may be reconsidering these plans.
Haine added: “The knock-on effect of all this speculation and uncertainty is clear to see with people drastically altering their pension saving behaviour either by upping contributions into SIPPs or even bringing forward major life decisions by requesting their tax-free lump sum early.”
Despite the uncertainty surrounding potential pension changes, topping up a personal pension, such as a SIPP, remains an effective way to secure retirement savings.
SIPPs offer several advantages, including tax-efficient growth and the ability to choose from a wide range of investments.
One key benefit is the tax relief on contributions, which effectively reduces income tax liability. Basic rate taxpayers receive a 20 per cent top-up, while higher and additional rate taxpayers can claim even more relief.
SIPPs also provide flexibility in saving and the option to consolidate multiple pension pots.
This is particularly useful for freelancers, the self-employed, or those wanting to supplement their pension savings.
Haine emphasised: “Even non-taxpayers, those not working or children, can benefit from tax relief, though the amount they can contribute to a SIPP is capped at £2,880 with the Government topping that up with 20 per cent tax relief.”
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For investors concerned about potential Capital Gains Tax (CGT) changes in the upcoming Budget, experts suggest considering a ‘Bed & Pension’ strategy.
This involves selling shares or funds using current exemptions and repurchasing them within a pension wrapper, such as a SIPP, to protect future returns from tax charges.
Haine continued: “With Reeves still believed to be considering an overhaul of CGT in her Budget at the end of the month, potentially aligning CGT rates with income tax, moving investments within a tax wrapper, such as a SIPP or ISA, before the Budget, will protect the portfolio from tax on any future gains.”
Investors are reminded to seek guidance when making investment decisions. Many investment platforms offer helpful tips and advice to ensure savers make informed choices aligned with their risk profile.
