New Chancellor John Healey has been warned by financial experts to safeguard pension tax-free rules ahead of his first Budget. According to investment platform AJ Bell, savers who withdraw tax-free cash too early could lose as much as £63,169.
Warning Over Early Withdrawals
AJ Bell has written to the new Chancellor, who replaced Rachel Reeves under Prime Minister Andy Burnham, urging him not to cut pension tax-free allowances in the upcoming November Budget. Currently, individuals can access their private pensions at age 55 (rising to 57) and take a 25% tax-free lump sum.
AJ Bell calculated that someone aged 55 who takes their full lump sum from a £500,000 pension pot and places it in a cash savings account earning an average 4% could be £63,169 worse off by age 65, due to missing out on years of investment growth.
Sharp Rise in Withdrawals
Financial Conduct Authority figures show tax-free pension withdrawals averaged £7.9 billion between 2018 and 2023, then more than doubled to £18.3 billion in 2024-25. AJ Bell attributes this surge to speculation that the government might reduce the tax-free withdrawal limit.
The platform has called for a 'Pension Tax Lock' to protect tax-free lump sum withdrawals and guarantee pension tax relief. CEO Michael Summersgill said: “Pension providers raised alarm bells at both the 2024 and 2025 Budgets, warning that cash was being withdrawn from long-term pension investments and parked in the bank due to rumours around the future of tax-free cash.”
He added: “The FCA’s own data indicates that at the 2024 Budget alone savers pulled an additional £10bn. That’s money being taken out of long-term investments, which is bad for the economy and bad for people’s long-term retirement plans.”
Opportunity for Certainty
Summersgill noted that while data for 2025 is not yet published, industry experience suggests the trend is worsening. He said: “The appointment of a new Chancellor presents an opportunity to finally draw a line under this issue, preventing a repeat when John Healey comes to deliver his first Budget.”
