The new Chancellor, John Healey, has been encouraged to commit to pension tax stability ahead of the Budget to avoid a repeat of people withdrawing money from their pensions in response to speculation.

AJ Bell said that the government’s failure to commit to retaining pension tax rules at the 2024 Budget prompted savers to withdraw an additional £10bn from their retirement accounts, according to its analysis of Financial Conduct Authority (FCA) data.

The figures showed that, between the 2018/19 and 2022/23 tax years, tax-free cash withdrawals across FCA-regulated firms averaged £7.9bn a year and never exceeded £8.7bn.

However, in 2024/25, withdrawals increased “dramatically” to £18.3bn, which AJ Bell said indicated a £10bn increase spurred by rumours of a possible cut to tax-free cash at the Autumn Budget 2024.

The financial services firm has therefore written to Healey to call for a public commitment to a ‘pension tax lock’ to avoid a repeat of these circumstances.

It argued that a pension tax lock would support UK growth by encouraging long-term investment, help people make the most of their pension investments, and allow people to plan for retirement for effectively.

This pension tax lock would focus on tax-free lump sum withdrawals and pension tax relief.

“Pension providers raised alarm bells at both the 2024 and 2025 Budgets, warning that cash was being withdrawn from long-term pension investments and parked in the bank due to rumours around the future of tax-free cash,” said AJ Bell CEO, Michael Summersgill.

“The FCA’s own data indicates that at the 2024 Budget alone savers pulled an additional £10bn. 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.

“Although data is yet to be published for 2025, the experience of pension firms across the industry indicates the trend is only getting worse.

“The absence of a lasting commitment to stability around key pension tax incentives – a tax-free cash allowance in retirement and tax deferral when contributing – has allowed rumours to fester. A pension tax lock would give certainty to savers and stabilise the retirement savings market without costing the Treasury a penny in new spending.

“The appointment of a new Chancellor presents an opportunity to finally draw a line under this issue, preventing a repeat when John Healey comes to deliver his first Budget.”

---