Chancellor John Healey has been urged by four major pension providers to rule out any changes to the 25 per cent tax-free withdrawal limit on pension pots, ahead of his first Budget in November. The call comes amid speculation that the cap could be reduced, echoing fears that unsettled savers last year.
Providers Unite to End Uncertainty
AJ Bell, Standard Life, Royal London, and Hargreaves Lansdown have jointly written an open letter to Mr Healey, demanding clarity on the issue. The letter warns that persistent rumours about the future of tax-free cash are harming household finances and eroding trust in the pension system. Under current HMRC rules, savers can access 25 per cent of their pension pot tax-free from age 55.
Michael Summersgill, chief executive of AJ Bell, said: “Pension providers raised alarm bells at both the 2024 and 2025 Budgets, warning that cash was being withdrawn from long-term pension investments and parked in the bank due to rumours around the future of tax-free cash. The absence of a lasting commitment to stability around key pension tax incentives has allowed rumours to fester.”
Call for a Pension Tax Lock
Mr Summersgill added that a “pension tax lock” would “give certainty to savers” with no cost to the Treasury. Helen Morrisey, head of pensions and retirement analysis at Hargreaves Lansdown, echoed the sentiment, stating: “The new Chancellor should end this damaging cycle of uncertainty by giving a clear commitment that tax-free cash and pension tax relief will not be changed at the forthcoming Budget. Constant speculation risks encouraging rushed decisions today and undermining trust in the pension system for years to come.”
The providers’ intervention follows Mr Healey’s appointment as Chancellor, replacing Rachel Reeves in Prime Minister Andy Burnham’s first cabinet reshuffle. Mr Healey, who previously served as Makerfield MP, will deliver his first fiscal event in November, with the Budget expected to set out the government’s economic priorities.
Treasury Response
A Treasury spokesperson said: “The Chancellor is fully focused on his priorities, which will boost business, help with the cost of living and support people in every postcode. As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
The open letter highlights that in both 2024 and 2025, pension providers warned that unfounded rumours were driving savers to make hasty withdrawals and park cash in bank accounts, potentially jeopardising their long-term retirement income. The 25 per cent tax-free lump sum is considered a cornerstone of the UK pension system, and any reduction could trigger a significant behavioural shift among savers. Industry experts estimate that over £10 billion was withdrawn or repositioned in response to similar speculation in previous years, though the Treasury has not confirmed this figure.
With the autumn Budget looming, Mr Healey faces mounting pressure to provide clarity. The providers argue that a firm commitment would not only reassure millions of savers but also prevent unnecessary disruption to long-term investment strategies. As the new Chancellor prepares his first major economic speech, the pension industry will be watching closely for any signal of change.
