Savers top-up pensions as Budget cut looms

Savers top-up pensions as Budget cut looms

Pension provider Zurich has seen pension top-ups soar ahead of next week’s Budget as fear of pension tax relief cuts loom.

Cash flowing into pensions on Zurich’s investment platform increased 98 per cent in September, compared to the annual average.

The value of one-off pension contributions also jumped 161 per cent from the 12-month average as savers invested larger amounts, the provider said.

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Alistair Wilson, Zurich’s head of retail platform strategy, said people were "making the most of the higher pension savings cap while they still can".

He said investors were clearly worried the government could slash the savings limit in the upcoming budget and were rushing to top-up their pots.

Mr Wilson said: "The amount of money flowing into pensions doubled last month – even outstripping peaks seen ahead of tax-year end. 

"Many savers are also paying in more than the current £40,000 annual limit to take advantage of unused allowances from previous years before it’s too late."

The annual allowance limits how much can be contributed to pensions each year while still receiving tax relief.

As the government plans to provide an extra £20.5bn funding for the NHS by 2023 to 2024, pension tax relief has been viewed as one of the likely targets of cuts in the next Budget.

The annual allowance is understood to be the most likely target, with Chancellor of the Exchequer Philip Hammond revealing he considered the tax relief "eye-wateringly expensive".

Gross pension tax relief in 2016/17 is projected to be £38.6bn, up from £38.5bn in 2015/16.

Mr Wilson said speculation about future cuts were increasing the government’s bill.

He said: "There’s been a sharp increase in pension contributions since speculation began over a potentially lower savings cap. 

"Far from reducing the cost of tax relief, the Government’s continued tinkering with pensions is pushing the bill up.

"The Chancellor should end the uncertainty for savers and give them the confidence and stability they need to make long-term plans for their retirement."

Although any reduction in the annual allowance would be targeted at wealthy savers, Mr Wilson said self-employed workers would suffer the most.

He said: "Not everyone pays into a pension in the same way. Self-employed workers often have to choose whether to contribute to a pension or invest in their business. This means they may only be able to make ad hoc contributions as they go or larger payments nearing retirement.

"Britain’s growing population of self-employed workers already misses out on benefits such as auto-enrolment, making it harder for them to save for retirement.  Restricting the amount they can save would penalise them further."

According to data from the Department for Work and Pensions (DWP), the number of self-employed workers saving into a pension through auto-enrolment has dropped from 19 per cent in 2012/13 to 16 per cent in 2016/17.

Mr Wilson added: "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."