John Healey has been handed an urgent pension warning ahead of his first Budget as Chancellor.
Savers who withdraw tax-free cash too early could leave themselves more than £63,000 worse off by missing years of investment growth.
AJ Bell has written to Mr Healey asking him to confirm that pension tax-free cash entitlements will not be changed in his first Budget.
The investment platform fears continued speculation could prompt more people to access their retirement savings earlier than planned.
Its proposed Pension Tax Lock would protect the tax-free lump sum available when people access their pensions, formally known as the pension commencement lump sum. It would also maintain tax relief on pension contributions.
Tax-free pension withdrawals averaged £7.9billion a year between 2018/19 and 2022/23 before surging to £18.3billion in 2024/25, according to Financial Conduct Authority figures.
The total did not exceed £8.7billion in any of those five tax years, even after withdrawals increased following the pandemic.
However, they later climbed to £18.3billion in 2024/25 amid widespread speculation about possible changes to pension tax-free cash.
Chancellor John Healey will honour the commitment first made last year by his predecessor | GB NEWS
That pattern shattered around the 2024 general election and Rachel Reeves’ Autumn Budget. Withdrawals surged to £18.3billion in the 2024/25 tax year, an increase of roughly £10billion above the norm.
AJ Bell believes the surge was driven by speculation that the Government could reduce the amount savers are allowed to withdraw from their pensions tax-free.
The provider said uncertainty prompted people to take money out of long-term investments and place it in bank accounts while they waited for clarity. Doing so meant their savings could miss out on future investment growth.
AJ Bell chief executive 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Summersgill said: “Pension providers raised alarm bells at both the 2024 and 2025 Budgets, warning that cash was being withdrawn from long-term pension investments and parked in the bank due to rumours around the future of tax-free cash.”
Pension providers raised alarm bells at both the 2024 and 2025 Budgets
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GETTYHe added: “The FCA’s own data indicates that at the 2024 Budget alone savers pulled an additional £10 billion. 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.”
Official figures covering the period around the 2025 Budget have not yet been published. However, Mr Summersgill said the experience of pension providers suggested withdrawals had continued to increase.
He said: “Although data is yet to be published for 2025, the experience of pension firms across the industry indicates the trend is only getting worse.”
AJ Bell believes the appointment of John Healey as Chancellor provides an opportunity to end the uncertainty before his first Budget.
Early withdrawals conflict with the Government’s ambitions to improve retirement outcomes
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GETTYThe provider argues that making this commitment would not require additional Treasury spending or new legislation, but would give savers greater confidence to leave their retirement money invested.
AJ Bell launched a parliamentary petition supporting the proposal in 2025. It attracted more than 20,000 signatures from savers and financial advisers who opposed reductions to tax-free cash allowances or contribution tax relief.
The company warned that continued speculation could push more people into making long-term financial decisions based on fear.
It also argued that early withdrawals conflict with the Government’s ambitions to improve retirement outcomes and direct more pension investment into the UK economy.