AJ Bell has called on Prime Minister Andy Burnham and Chancellor John Healey to commit to a Pension Tax Lock ahead of the Autumn Statement on October 28, warning that a repeat of last year’s speculation could drive another surge in pension withdrawals. The financial services company has written to the Chancellor’s office urging clarity on pension tax incentives, following data showing that tax-free cash withdrawals spiked by 63% in 2024/25, coinciding with the first Budget under the Labour government.
Rising withdrawals and the cost of uncertainty
According to Financial Conduct Authority (FCA) data, tax-free cash withdrawals rose 40% in 2023/24 ahead of the last General Election, and by a further 63% in 2024/25, when the first Budget under the Labour government took place. In the five tax years before the General Election (2018/19 to 2022/23), withdrawals across FCA-regulated firms averaged £7.9 billion a year and never exceeded £8.7 billion, even following the post-Covid increase. In 2024/25, the value of withdrawals rose to £18.3 billion, suggesting excess withdrawals from pensions in the region of £10 billion.
AJ Bell’s Tom Bell said: “Pension providers, including AJ Bell, warned that the absence of clarity over the future of pension tax incentives was creating instability.” He added: “Without clarity from government well ahead of the Budget, the figure this time round will inevitably be higher still.”
Calls for a Pension Tax Lock
AJ Bell has laid out the case for a Pension Tax Lock in a letter to the Chancellor’s office, arguing that the message should be heard “loud and clear” given the volume of protestation from pension savers over the last two years. The company’s analysis suggests that a tax-free cash raid would be complex and politically toxic, making it an unlikely option for the new Chancellor. However, they stress that if Healey has reached that conclusion, he should announce it as soon as possible to give certainty to savers and “bank an easy political win”.
Tom Bell said: “Given how complex and politically toxic a tax-free cash raid would be, it is unlikely to be an appealing option for the new chancellor. If this is indeed Healey’s conclusion, he should announce it as soon as possible, give certainty to savers and bank an easy political win.” He further noted that Healey can quickly differentiate himself from his predecessor by listening to valid concerns and acting quickly to “nip the issue in the bud”.
Background and next steps
The calls come after widespread speculation before last year’s fiscal address about possible reform to Pension Commencement Lump Sum (PCLS) entitlements, commonly known as ‘tax-free cash’, which led to heightened withdrawals from pension pots. The Autumn Statement will be delivered by Prime Minister Andy Burnham, the Makerfield MP, and Chancellor John Healey, who replaced Rachel Reeves in No 11. AJ Bell’s letter urges the government to provide clarity well ahead of the Budget to prevent further instability in pension savings.
