Chancellor faces pension tax reform pressure
The new Chancellor, John Healey, faces pressure to introduce a “pension tax lock” to prevent another surge in retirement withdrawals caused by speculation over policy changes.
Investment platform AJ Bell reported that uncertainty around pension tax rules in last year’s Budget led savers to withdraw an additional £10bn from their retirement accounts. Analysis of Financial Conduct Authority data revealed withdrawals rose from an average of £7.9bn annually to £18.3bn in the 2024/25 tax year.
Tax-free lump sum withdrawals from FCA-regulated firms previously never exceeded £8.7bn per year between 2018/19 and 2022/23. In 2024/25, that amount increased dramatically. AJ Bell linked the rise to rumours that the government might reduce tax-free cash allowances in the Autumn Budget 2024.
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The firm has urged Healey to commit to a pension tax lock ahead of his first Budget. The proposal would guarantee current rules on tax-free lump sums and pension tax relief, offering stability for savers and the broader market.
AJ Bell CEO Michael Summersgill stated that pension providers warned during both the 2024 and 2025 Budgets about cash being withdrawn from long-term investments due to speculation. “The FCA’s data shows that at the 2024 Budget alone, savers pulled an additional £10bn. That money is no longer in long-term investments, which harms both the economy and retirement plans,” he said.
While official figures for 2025 remain unavailable, Summersgill noted industry reports suggest the trend has intensified. Without a firm commitment, speculation will likely continue driving withdrawals, weakening retirement security and economic growth.
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A pension tax lock would not require new Treasury spending. It would formalize existing rules, giving savers confidence to keep funds invested. The firm also highlighted broader benefits, such as supporting long-term investment in UK markets and improving retirement planning.
Summersgill said: “The lack of a lasting commitment to stability around pension tax incentives has allowed rumours to spread. A pension tax lock would provide certainty without costing the Treasury anything in new spending.”
The new Chancellor’s first Budget is expected soon. Until then, the industry will watch for signs the government is ready to end the cycle.
