Pension industry bosses have urged Andy Burnham not to touch the 25% tax-free pension lump sum rule, as speculation mounts ahead of Labour's Autumn Budget. The warning comes amid fears that uncertainty over the allowance could prompt millions of savers to withdraw money early and make costly decisions.
Concerns over early withdrawals
Under current rules, most pension savers can take 25% of their pension pot tax-free once they reach the minimum pension age, subject to a maximum tax-free lump sum of £268,275. However, speculation that the allowance could be cut to £100,000 or lower has previously led some savers to take their money earlier than planned.
Data from the Financial Conduct Authority indicates that savers withdrew an additional £10 billion around the 2024 Budget compared with levels seen over the previous five years. Pension providers have raised concerns about similar uncertainty surrounding both the 2024 and 2025 Budgets, with money taken out of long-term pension investments and placed into bank accounts.
Industry leaders call for certainty
Barry O'Dwyer, chief executive of Royal London, said: "The last couple of Budgets we’ve seen...scare stories about the tax-free lump sum, which resulted in people doing things to their pension that they wished they hadn’t."
Steven Levin, chief executive of Quilter, said: "For many people, the tax-free lump sum is already factored into their retirement plans and feels like something they own. That means any suggestion it could be reduced can feel like a loss people are keen to avoid. Our research shows that fears over potential policy changes prompted many retirees to withdraw tax-free cash ahead of the Budget, with almost two-thirds regretting that decision."
Political pressure for clarity
Tom Selby, director of public policy at AJ Bell, has called for clarity well before the Budget. He said: "Providing certainty over pensions’ tax-free cash well ahead of the Budget should be a political no-brainer for the prime minister and the chancellor."
James Heal, public policy director at St James’s Place, also warned that "once tax-free cash has been taken from a pension, that decision can’t be reversed, meaning individuals can permanently alter their retirement plans based on rumours rather than confirmed policy."
