New chancellor John Healey has been urged to commit to pension tax stability to avoid another multi-billion-pound increase in early withdrawals from retirement funds.
The call has come from AJ Bell which has called for a pension tax lock ahead of the new Chancellor’s first Budget.
It said new analysis of FCA data shows that the Government’s failure to commit to pension tax stability prompted a £10bn spike in withdrawals from retirement accounts around the time of Rachel Reeves’ first Budget.
The FCA data shows that 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 £7.9bn per year and never rose above £8.7bn despite a post-Covid bounce in withdrawals.
Withdrawals then increased ahead of the 2024 election and rose dramatically to £18.3bn 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 said.
It has written to new Chancellor John Healey calling for a public commitment to a Pension Tax Lock to avoid a repeat of the 2024 and 2025 Budgets and give stability to Brits saving for retirement.
Michael Summersgill, AJ Bell CEO, said: “Pension providers raised alarm bells at both the 2024 and 2025 Budgets, warning that cash was being withdrawn from long-term pension investments and parked in the bank due to rumours around the future of tax-free cash.”
He said that although data is yet to be published for 2025, the experience of pension firms across the industry indicates the trend is only getting worse. He said the absence of a lasting commitment to stability around key pension tax incentives has allowed rumours to fester.
Mr Summersgill said: “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.”