Rishi Sunak could SLASH pension tax-free cash – will your savings be affected?

Pensions and savings: Interactive Investor expert gives her advice

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Pension tax-free cash is one of the key benefits of saving for retirement, and serves as a major incentive. All money built up in a person’s pension as cash can be taken tax-free up to 25 percent.

For smaller cash sums taken from a pension, up to 25 percent of each sum is tax-free.

The Government warns: “You may have to pay a tax charge on money you put into your pension after you withdraw cash.”

The flexibility of taking tax-free cash is an idea which is greatly treasured by many pension savers.

However, experts have warned this could be at risk in the future.

There are various approaches the Chancellor could take, but many are nervous about what could be announced in the spring statement.

Laura Suter, head of personal finance at AJ Bell, said: “A rumour that often does the rounds is that the Treasury is planning to either remove or restrict the ability of savers to take a quarter of their retirement pot tax-free.

“While the Treasury has seriously explored radical tax relief reform, it is telling that tax-free cash has never been looked at in the same way.

“This is likely in part because any move to cap or abolish tax-free cash altogether would be extremely unpopular.

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“In part it would almost certainly involve creating a protection regime, so pension contributions already made continue to benefit from their existing tax-free cash entitlement.”

If tax-free cash changes materialised, Ms Suter described the move as being both “unpopular and complex” for the Chancellor to enact.

In addition, any savings to the Exchequer could take a while to materialise. 

Nevertheless, it remains a potential tool at the Chancellor’s disposal, to deploy should it be needed to raise money. 

Those who want to find out more about their pension can use services such as the Government-backed MoneyHelper for guidance.

PensionWise also offers appointments to guide Britons through the process of managing their pension.

Others may wish to seek their own financial advice for tailored guidance. 

Britons are always urged to remain on the lookout for scams surrounding withdrawal of their pension.

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Individuals should be aware if they are approached out of the blue – by email, phone, text or in person.

Many scams often offer incredible returns or extremely low fees, but these can be too good to be true.

Research should be undertaken into any firm Britons deal with, and personal information should be kept private until the company has been confirmed as legitimate. 

Those who are unsure should visit the Financial Conduct Authority (FCA) for further guidance.

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