Andy Burnham told ‘don’t touch’ pension rule used by millions of Brits
Pension bosses have issued a warning over a key tax-free rule amid fears uncertainty could lead millions of savers to make costly decisions.
Andy Burnham has been urged to "don’t touch" a pension rule used by millions of Britons as speculation builds ahead of Labour's Autumn Budget. Financial industry bosses are calling for certainty over the future of the 25% tax-free pension lump sum amid concerns that fears of another change could prompt savers to withdraw billions of pounds early.
Under current rules, most pension savers can take 25% of their pension pot without paying tax on it once they reach the minimum pension age, subject to a maximum tax-free lump sum of £268,275.
However, speculation about whether the allowance could be cut to £100,000 or lower has previously prompted some savers to take their money earlier than planned.
The Financial Conduct Authority's data indicates that savers withdrew an additional £10billion around the 2024 Budget compared with levels seen over the previous five years.
Pension providers have raised concerns about similar uncertainty surrounding both the 2024 and 2025 Budgets, with money taken out of long-term pension investments and instead placed into bank accounts.
Barry O'Dwyer, chief executive of Royal London, said: "The last couple of Budgets we’ve seen...scare stories about the tax-free lump sum, which resulted in people doing things to their pension that they wished they hadn’t."
Steven Levin, chief executive of Quilter, said: "For many people, the tax-free lump sum is already factored into their retirement plans and feels like something they own. That means any suggestion it could be reduced can feel like a loss people are keen to avoid.
"Our research shows that fears over potential policy changes prompted many retirees to withdraw tax-free cash ahead of the Budget, with almost two-thirds regretting that decision."
Tom Selby, director of public policy at AJ Bell, has called for clarity well before the Budget.
He said: "Providing certainty over pensions’ tax-free cash well ahead of the Budget should be a political no-brainer for the prime minister and the chancellor."
James Heal, public policy director at St James’s Place, also warned that “once tax-free cash has been taken from a pension, that decision can’t be reversed, meaning individuals can permanently alter their retirement plans based on rumours rather than confirmed policy."
