Investment platform AJ Bell has called on Chancellor John Healey to commit to a pension tax lock, with a focus on tax-free cash and tax relief.
The tax lock proposal calls for a commitment to stability around tax-free cash (pension commencement lump sums) and tax deferral on contributions (pensions tax relief).
According to the platform, speculation about potential changes to retirement saving incentives, particularly tax-free cash, undermines confidence in the pensions system and leads to people making irreversible decisions based on fear, rather than their long-term financial goals.
In a letter to the new Chancellor, AJ Bell says speculation about changes to retirement saving initiatives also runs counter to wider government efforts to boost pensions adequacy and drive greater levels of investment.
Analysis from the platform of HMRC and 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.
However, 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.
Tom Selby, public policy director at AJ Bell, said: “This year’s Budget has been mercifully quiet so far, with speculation seemingly driven more by outside lobbying than unhelpful kite flying from with government.
“But that doesn’t mean chancellor John Healey has vanquished the spectre of pension tax raids. Rather than simply saying nothing, he should seize the opportunity to commit to not touching either tax-free cash entitlements or tax relief for the long-term.
“This would put the government squarely on the side of people who do the right thing and save for retirement, support UK capital markets and, crucially, wouldn’t cost the Exchequer a penny.”
The FCA is set to publish its annual Retirement Income Market Data covering 2025/26 this week, showing the total value of pension commencement lump sum payments from pensions.