Pension industry chiefs are demanding that Andy Burnham guarantee the future of the tax-free lump sum before the October 28 Budget.
Senior figures across Britain’s financial services industry have urged the Prime Minister and Chancellor John Healey to publicly rule out changes to the allowance, amid fears speculation could trigger another wave of withdrawals.
The heads of Royal London and Quilter, alongside policy leaders at some of the country’s largest investment platforms, have warned that failing to provide clarity could result in a third consecutive year of savers taking billions of pounds from their pensions ahead of a fiscal event.
The Treasury is under pressure to raise revenue for defence commitments and the Prime Minister’s wider agenda, fuelling concerns in the City that the tax-free pension allowance could be targeted.
Industry leaders have warned that uncertainty could encourage savers to make irreversible decisions that damage their long-term retirement prospects, based on speculation rather than confirmed changes to Government policy.
Under current rules, most pension savers can withdraw 25 per cent of their pension pot tax-free from the age of 55, subject to a maximum of £268,275.
Speculation before recent fiscal events that the threshold could be reduced to £100,000 or lower triggered a significant increase in withdrawals.
Financial Conduct Authority (FCA) data highlighted by investment platform AJ Bell showed that pension lump sum withdrawals exceeded £18billion during the 2024-25 tax year.
‘Political no-brainer’ as pension industry urges Andy Burnham to protect tax-free lump sum
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GETTYThat was £10billion higher than the average in preceding years, with AJ Bell attributing the increase largely to fears that the tax-free entitlement could be reduced.
The pattern has been repeated across two successive Budget cycles, with financial services figures warning that uncertainty could prompt further withdrawals ahead of the October Budget.
Barry O’Dwyer, chief executive of Royal London, said the past two Budgets had produced “scare stories about the tax-free lump sum, which resulted in people doing things to their pension that they wished they hadn’t”.
He said savers had moved money out of pensions “where it was enjoying tax-free growth” and into “bank accounts where the interest is lower and it’s then taxed”.
John Healey will present his first Budget as Chancellor on October 28
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PAMr O’Dwyer said it was “only fair” for the Government to provide certainty, adding: “They have been investing sometimes for 40 years and it doesn’t seem too much to ask the government to stick by the rules that these people were expecting.”
Quilter chief executive Steven Levin also warned of the impact of uncertainty, saying the lump sum for many retirees “feels like something they own” and that the prospect of a reduction could prompt them to act.
Mr Levin added: “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.”
Tom Selby, director of public policy at AJ Bell, said providing certainty over the future of tax-free pension cash ahead of the Budget “should be a political no-brainer for the prime minister and the chancellor.”
Mr Selby warned: “Allowing speculation to build, as Rachel Reeves did ahead of the last two Budgets, will inevitably result in further early withdrawals by nervous savers, undermining both their retirement aspirations and the government’s efforts to drive more investment into UK plc over the longer term.”
James Heal, public policy director at St James’s Place, said: “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.”
Mr Burnham has already ruled out changes to stamp duty in an effort to protect the housing market, with industry figures calling for a similar commitment on pension tax-free cash.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said savers deserved “a stable framework in which they can plan for retirement, not another summer spent trying to second-guess the Treasury.”
The Treasury has not offered a similar reassurance, instead pointing to the Government’s established approach of announcing tax decisions at fiscal events.
A Treasury spokesman said: “The Chancellor is fully focused on his priorities, to boost business, help with the cost of living and support people in every postcode.
“The Chancellor will set out decisions around tax at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
The industry is now calling for ministers to provide clarity on the future of the tax-free pension lump sum before October 28, when the Chancellor is due to deliver the Budget.