Chancellor encouraged to commit to pension tax stability ahead of Budget

UK Chancellor, John Healey, has been urged to commit to protecting pension tax-free cash and tax relief ahead of the October Budget, amid concerns that continued uncertainty could trigger another wave of potentially damaging withdrawals from retirement savings.

In its Budget submission to the Treasury, AJ Bell reiterated its call for a 'Pension Tax Lock', which would commit the government to maintaining the two core pension tax incentives: pension commencement lump sums (PCLS) and pensions tax relief, for the remainder of parliament.

The investment platform warned that repeated speculation over possible changes to pension taxation was undermining confidence in long-term saving and encouraging people to make irreversible decisions based on concerns about potential Budget announcements.

AJ Bell's analysis of Financial Conduct Authority (FCA) data suggested that speculation ahead of the 2024 Budget prompted around £10bn of excess withdrawals from retirement accounts, with the provider expecting data to show a similar pattern around the 2025 Budget.

It argued that a pre-Budget commitment to stability would help prevent a repeat ahead of this year’s fiscal event without creating any additional cost for the Treasury.

AJ Bell chief executive, Michael Summersgill, said: “Savers lit a £10bn distress flare at the 2024 Budget, which was never extinguished. To avoid another damaging repeat, Chancellor, John Healey, must side with savers by committing to pension tax stability now.

“A pledge of certainty would not cost a penny in new Treasury spending and put an end to rumours that have damaged household finances and the economy.”

He added that the Chancellor should focus on supporting growth and improving household financial resilience, arguing that repeated pension withdrawals had moved “10s of billions” out of investments and into cash.

AJ Bell warned that pension tax relief should also be protected, arguing that it reflects the deferred nature of pension income and remains central to encouraging long-term saving and reducing future reliance on the State.

The firm's Pension Tax Lock campaign was launched last year, with a parliamentary petition attracting more than 20,000 signatures from members of the public and financial advisers.

Alongside its pension tax demands, AJ Bell reiterated its opposition to bringing unused pension funds within the scope of Inheritance Tax (IHT) from April 2027.

The provider argued that the emerging rules were unnecessarily complex and risked creating additional cost, confusion and distress for bereaved families.

It called on the government to consider simpler alternatives, including a potential flat-rate charge on pension funds at death, while also undertaking a broader review of the IHT system.

This article originally appeared in our sister publication Pensions Age.

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