New Chancellor urged to prevent repeat of £10 billion pension withdrawal surge with a Pension Tax Lock

In the run-up to the last two Budgets there was heightened speculation around whether the Government would change the key tax advantages for pensions.

We have written to the new Chancellor, calling for a public commitment to a long-overdue Pension Tax Lock, designed to provide certainty for those saving for retirement and avoid a repeat of the disruption seen around the 2024 and 2025 Budgets.

Michael Summersgill, our CEO, comments:

“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.”

What does the FCA data tell us?

New analysis of FCA data indicates uncertainty ahead of Rachel Reeves' first Budget prompted savers to withdraw around £10 billion more from their pensions than usual, amid widespread speculation over potential changes to tax-free cash.

In the five tax years before the 2024 General Election campaign (2018/19 to 2022/23), tax-free cash withdrawals through FCA-regulated firms averaged £7.9 billion a year and never exceeded £8.7 billion, despite a post-pandemic increase in activity.

Withdrawals began rising ahead of the 2024 election before jumping to £18.3 billion in 2024/25. The increase suggests rumours of restrictions to tax-free cash encouraged many people to access their pension savings earlier than planned.

Source: AJ Bell / FCA retirement income data.

What is the Pension Tax Lock?

We have consistently campaigned for governments to provide greater stability on pension tax policy, particularly around the two incentives that underpin long-term retirement saving: tax-free cash withdrawals (Pension Commencement Lump Sums); and tax relief on pension contributions.

Repeated speculation about potential changes to these incentives can undermine confidence in the pensions system and lead people to make irreversible decisions based on uncertainty rather than their long-term financial goals.

This creates unnecessary disruption for savers and runs counter to wider efforts to improve retirement outcomes and encourage long-term investment, including investment in the UK economy.

The proposed Pension Tax Lock would therefore commit the Government to maintaining:

1. The amount people can withdraw tax-free from their pension.

2. The current system of tax relief on pension contributions.

In 2025, we launched a parliamentary petition which attracted more than 20,000 signatures from members of the public and financial advisers. The petition called on the Government to commit to protecting both tax-free cash and pension tax relief.

The petition and the Government's response can be found here.