As ever before Budget statements, the media is doing its best to create headlines based on what could be announced by chancellor Rachel Reeves in November.
Last year, the noise around potential changes to the tax-free lump sum amount caused a substantial increase in people accessing their pension pots earlier than planned. Figures published recently by the Financial Conduct Authority (FCA) show that over 25,000 people accessed pots worth £250,000 or more in the six months to September 2024 – more than 50 per cent on the same period a year earlier.
Once the Budget came, the predicted change to tax-free cash (formally known as pension commencement lump sum) did not materialise leaving many to regret their decision.
Now HMRC and the FCA have issued a warning that those making pension withdrawals before the forthcoming fiscal statement will not be able to use the 30-day ‘cooling off’ rules to change their mind should the chancellor choose not to amend the tax-free cash rules.
The official statement reads: “a contract allowing an individual person to take a pension commencement lump sum or uncrystallised funds pension lump sum is not listed as a cancellable contract, so cancellation rights do not generally apply to these transactions.”
It adds that situations where cancellation rights will be upheld, the tax consequences of withdrawing lump sums (including any use of the individual’s lump sum allowance) will not be reversed even if the payment is returned.
We would always suggest progressing cautiously in terms of acting on the basis of what is still, at this stage, speculation. We cannot be sure of the chancellor’s proposals until the official Budget information is released or she takes to the lectern on 26 November.
If you have any concerns about what you might be seeing in media reports, please do speak with your adviser who will be happy to chat through your current position and the potential impact of any proposed government changes.
