- AJ Bell writes to new chancellor John Healey calling for commitment to pension tax stability ahead of the Budget
- Analysis of FCA data indicates excess £10 billion withdrawn from pensions at the first Labour Budget in 2024 alone
- Budget 2025 saw AJ Bell and other providers warn of similar trend as people took tax-free cash early
- Chancellor should commit to a Pension Tax Lock to avoid a repeat at the 2026 Budget
- Pension Tax Lock would support UK growth by encouraging long-term investment, help people make the most of their pension investments and allow working-age Brits to plan for retirement
New chancellor John Healey is today urged to commit to pension tax stability to avoid another multi-billion-pound increase in early withdrawals from retirement funds.
Government failure to commit to pension tax stability prompted a £10 billion spike in withdrawals from retirement accounts around Rachel Reeves’ first Budget, new analysis of FCA data shows.
In the five tax years prior to the General Election campaign (2018/19 to 2022/23) tax-free cash withdrawals across FCA regulated firms averaged £7.9 billion per year and never rose above £8.7 billion despite a post-Covid bounce in withdrawals.
However, withdrawals then increased ahead of the 2024 election and rose dramatically to £18.3 billion in 2024/25, indicating a £10bn increase spurred by rumours of a possible cut to tax-free cash at the Autumn Budget 2024.
AJ Bell, one of the UK’s leading pension providers for DIY and advised retail investors, has written to new Chancellor John Healey calling for a public commitment to a long-overdue Pension Tax Lock to avoid a repeat of the 2024 and 2025 Budgets and give stability to Brits saving for retirement.
AJ Bell CEO Michael Summersgill, says:
“Pension providers raised alarm bells at both the 2024 and 2025 Budgets, warning that cash was being withdrawn from long-term pension investments and parked in the bank due to rumours around the future of tax-free cash.
“The FCA’s own data indicates that at the 2024 Budget alone savers pulled an additional £10 billion. 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.”
Source: AJ Bell/FCA retirement income data.
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.
