AJ Bell has launched a new parliamentary petition calling on the government to commit to a ‘pension tax lock’, which would guarantee the preservation of key pension tax incentives, including tax-free cash and pension tax relief, for the duration of the current parliament.

The petition, which has already attracted more than 2,500 signatures, urges the government to make a public pledge not to alter the 25 per cent tax-free cash entitlement or existing tax relief rules, under which contributions are made from pre-tax income and taxed upon withdrawal.

AJ Bell said the change would come at “zero cost to the Exchequer” while providing savers with confidence to plan for retirement without fear of shifting rules, ending “damaging speculation” about the future of pension tax incentives, which it warned risks undermining saver confidence and prompting hasty or ill-informed decisions.

There has been growing concern over the impact of Budget speculation on saver behaviour, after data from the Financial Conduct Authority (FCA) revealed that there has been a significant increase in the amount of money being withdrawn from pensions, with a particular "surge" seen in those accessing large pension pots.

Whilst the Pensions Minister, Torsten Bell, has dismissed the early rumours as "nonsense", industry experts have speculated that the recent reports that Chancellor Rachel Reeves could cut the 25 per cent tax-free allowance could nevertheless prompt a further increase in people taking their lump-sum.

AJ Bell director of public policy, Tom Selby, warned that the current uncertainty surrounding pension taxation is creating unnecessary instability for long-term savers.

“When people save in a pension, they enter into a tax pact with the government,” he continued.

“Take-home pay today is sacrificed for the long term, on the proviso that it will instead be taxed on withdrawal and comes with the added benefit of a 25 per cent tax-free element."

Selby stressed that this was "the foundation" upon which the retirement plans of millions of Brits are built and requires a "firm commitment" to stability from the government.

“Individuals contribute to a pension in good faith and should not be subject to endless speculation that the government may move the goalposts before they access their money,” he added.

Consequently, Selby argued that a formal ‘pension tax lock’ would signal that the government is “serious about a fair deal for workers” and would also “lay down the gauntlet to any future government tempted by a pension tax raid”.

“The economy should benefit too,” he suggested, adding that more stability in the pensions system should give people confidence to boost their contributions - a large chunk of which will be invested in UK business.

“For an administration struggling desperately in the opinion polls, a policy such as this, with appeal to older and younger voters alike, should be a no-brainer,” he said.

If the petition reaches 10,000 signatures, the government will be required to issue a formal response.

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