Advisers wary as investors pile into pensions before Budget

Pension providers are seeing a rise in lump-sum contributions to retirement funds ahead of the Budget, amid concerns the Chancellor will push ahead with plans to cut higher rate tax relief.

The Chancellor is under pressure to reverse a planned cut in tax relief on pension contributions for high earners which would give them only basic-rate tax relief.

From next April, tax relief is due to be clawed back once earnings top £150,000 and removed completely for those earning £180,000 or more.

Prudential, the UK's biggest pension provider, says it has seen a significant increase in the number of people moving lump sums of new cash into their pensions in recent weeks.

A spokesperson says: "We believe people are thinking they'll guarantee the tax relief on their contributions now ahead of a potential change in the higher rate tax relief next week."

SIPP provider AJ Bell has reported more large contributions, which it says has "been helped by uncertainty around the Budget".

Individual SIPP sales also grew significantly at Legal & General (L&G) in Q1 2010, a rise the provider links to increased take-up among individuals who would be hit by changes to higher rate tax relief.

Some IFAs are advising clients who can to deposit lump sums into their retirement funds sooner rather than later.

AWD Chase de Vere spokesperson Patrick Connolly says the national IFA has "absolutely" seen a rise in lump sum pension contributions.

"A lot of it has been driven by us," he says. "But people worry they may not be able to get the higher rate tax relief.

"We have been explaining to people looking to make a pension contribution anyway that it would be sensible to do so before 22 June."

However, some advisers are cautioning against reacting before details of the Budget are known.

Chief executive of pensions support services provider Carey Pensions, Christine Hallett, says now is not the time for gambling.

"Advisers' role is to understand their clients, rather than taking a gamble by just seeing the Budget as an opportunity to get people to make large contributions."

Independent Life & Pensions director Joe Hill says capital gains tax (CGT) is creating a bigger upset for most clients.

"I had clients coming to me for advice on CGT the day after the coalition Government was announced.

"We had made recommendations, but have now deferred these until we know exactly what the Budget measures are."

He says some clients have been burned when they have rushed to make financial decisions, and he is reluctant to make any changes ahead of the Chancellor's announcement.

"A number of my clients got hit by the rules which came in before April, especially on anti-forestalling, so I'm reticent to make any changes before the Budget."