- AJ Bell urges John Healey to end uncertainty over pensions tax-free cash in Budget submission
- Speculation prompted £10 billion of excess withdrawals at Budget 2024, with data expected to show a similar pattern for 2025
- AJ Bell campaign for a Pension Tax Lock highlights damaging consequences of uncertainty, particularly around tax-free cash
- Failure to commit to stability could deliver another round of damaging uncertainty, harming household finances and the wider economy
- AJ Bell also calls on the Chancellor to revisit his predecessor’s convoluted ISA overhaul, consider pragmatic alternatives to bringing pensions into Inheritance Tax (IHT) and focus on taxes that discourage investing in the UK like stamp duty
AJ Bell in its Budget submission today calls on the Chancellor to commit to pension tax stability to avoid another round of damaging speculation about tax-free cash ahead of the October Budget.
Analysis of FCA data demonstrates excess tax-free cash withdrawals of around £10 billion were triggered by speculation around the 2024 Budget, illustrating the scale of the impact on retirement plans and the wider economy.
A pre-Budget commitment to pension tax stability throughout this Parliament would allow John Healey to ensure there is no repeat around his October Budget or future fiscal events.
AJ Bell’s submission to the Treasury continues its long-running campaign for a Pension Tax Lock, calling on government to make a long-term commitment to stability on key pension tax incentives: tax-free cash (Pensions Commencement Lump Sums, or PCLS) and tax relief. Further details on the campaign can be found below.
AJ Bell CEO, Michael Summersgill, says:
“Savers lit a £10 billion distress flare at the 2024 Budget, which was never extinguished. To avoid another damaging repeat, Chancellor John Healey must side with savers by committing to pension tax stability now.
“A pledge of certainty would not cost a penny in new Treasury spending and put an end to rumours that have damaged household finances and the economy.
“The Chancellor should be laser-focussed on boosting growth and getting households onto a sound financial footing. Ending a phenomenon that has seen tens of billions taken out of investments and parked in cash should be right in his crosshairs.”
Pension Tax Lock
AJ Bell has consistently campaigned for government to commit to pension tax stability, with a focus on key tax incentives – tax-free cash (pension commencement lump sum) and tax relief.
Constant speculation about potential changes to retirement saving incentives, particularly tax-free cash, undermines confidence in the pensions system and leads to people making irreversible decisions based on fear, rather than their long-term financial goals. This is an unacceptable position given pensions form the cornerstone of long-term financial planning and personal financial responsibility.
Furthermore, it runs counter to wider government efforts to boost pensions adequacy and drive greater levels of investment, including in the UK economy.
The Tax Lock proposal calls for a government commitment to stability on the two core tax incentives in-built in the pension system: Tax-free cash, also called pension commencement lump sums (PCLS); and tax deferral on contributions, otherwise referred to as pensions tax relief.
A parliamentary petition launched by AJ Bell in 2025 quickly attracted over 20,000 signatures from the public and financial advisers. It called for a government commitment not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions. The petition and the government’s response can be found here.
Data from the FCA indicates failure to commit to pension tax stability prompted a £10 billion spike in withdrawals from retirement accounts around former Chancellor Rachel Reeves’ first Budget.
What other things can the Chancellor do to support savers and investors?
- Changes to tax relief on pensions contributions
Speculation about changes to tax-free cash has been damaging, but uncertainty over pensions tax relief is also a recurring concern at each Budget. Tax relief reflects the fact that pensions are deferred income and is central to encouraging long-term saving and reducing future reliance on the State. The Chancellor should commit to protecting both tax relief and tax-free cash, the two key pension tax incentives.
- Changes to Inheritance Tax
AJ Bell remains firmly opposed to bringing unused pension funds within IHT from April next year. The emerging rules are unnecessarily complex, and will create confusion, cost and distress for bereaved families. Simpler alternatives, such as a flat-rate charge on pension funds at death, should be considered instead.
The wider IHT system should also be reviewed to ensure it is proportionate.
- Rethink introduction of a new First Time Buyer ISA, and the future of the Lifetime ISA
Replacing the Lifetime ISA with a new First Time Buyer ISA (FTB ISA) would deliver no clear consumer benefit. The government should retain the Lifetime ISA and reform it so it works better for savers and first-time buyers. If it proceeds with introducing the FTB ISA, then an appropriate transition for Lifetime ISA customers should be developed.
- Encourage UK equity investment
Removing stamp duty on UK shares would be a clear and effective way to support UK equity investors. At a minimum, stamp duty should be removed from UK shares held in ISAs. The cost to the Treasury would be relatively modest, but the measure would send a clear message that government wants to make it easy for people to invest, particularly in UK assets.
- Rethink changes to non-Cash ISAs
The proposed changes to non-Cash ISAs will add complexity and risk pushing more ISA account holders into cash rather than investment. That would run directly counter to the government’s wider policy objectives. A different approach is still needed and is not too late to adopt.
- Don’t penalise investors to raise short-term revenue
The government should not seek short-term revenue by further penalising investors. Capital Gains Tax and investment income allowances have already been severely reduced in recent Budgets. Further changes would weaken incentives to save and invest and should not be pursued.
