Aegon has publicly urged chancellor Rachel Reeves to drop reported plans to cut reliefs on pensions contributions.
The firm said that speculation over changes to pensions tax rules is now ‘at fever pitch’ and moves similar to those reported in the media would amount to ‘a damaging pension cash grab’.
Reeves has just a week to finalise her first Budget, with many key aspects of it remaining uncertain.
Changes to rules on pensions contributions, inheritance tax (IHT) and capital gains tax (CGT) are reportedly under consideration, with the government reluctant to cut spending to balance the books.
While none of this has been confirmed yet, advice firms report that many clients are already taking action in an attempt to shield themselves from the worst effects of the expected tax hikes.
In response, Aegon has published recommended ‘pensions tax principles’ it hopes Reeves and her colleagues will take heed of.
It said the tax authorities should offer fair incentives to individuals across earnings bands, and apply these consistently across defined contribution and defined benefit schemes in the private and public sectors.
The government should also encourage employers to go beyond the minimum ‘auto-enrolment’ requirements and to offer more generous pension contributions, Aegon said.
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In addition, Aegon called for efforts to prompt adequate personal saving levels by offering ‘clear, timely and stable incentives’.
Steven Cameron, pensions director at Aegon, said: “As the first Budget under the new Labour Government fast approaches, the speculation over changes to how pensions are treated for tax purposes has reached boiling point.
“Most worryingly, the fear that some tax perks might be withdrawn immediately following the Budget is causing some individuals to rush into decisions that may be damaging to their long-term retirement plans.
“Now is a time for cool heads, not heat of the moment decisions that could have a negative impact for decades to come. The government is about to launch the second phase of its Pensions Review which provides an ideal opportunity to re-examine the true purpose of pensions and then to ensure tax rules and reliefs support this.
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“Savings in individual or workplace pensions represent some of the longest-term investments people make,” Cameron continued. “This often involves locking away savings for many decades and it’s right that people benefit from tax incentives in return for deferring earnings today to make themselves more self-sufficient in retirement.
“This is not only good for individuals but for society generally, avoiding over-reliance on an unfunded state pension in later life. The government is also keen that investments held by pension schemes are put to use in boosting the UK economy.
“Against this backdrop, it surely can’t be right that rumour upon rumour is leading to some individuals cashing in their pensions, quite possibly needlessly, before the chancellor stands up to give her inaugural Budget speech. Surely that’s not what the chancellor would wish to see happen.”
