Stamp out pension tax speculation or risk another cash grab, industry warns Healey
The pension industry has warned Healey not to allow pension tax speculation to go “unchecked” in the run up to his maiden Autumn Budget, after rumours led savers to pull millions from pension pots last year.
UK savers pulled £91bn from their pension pots before last year’s Autumn Budget as they looked to dodge Labour’s tax raid, new figures show.
The amount withdrawn from pots grew by £16bn in the 2025/26 tax year compared to the prior year, according to the latest figures from the Financial Conduct Authority.
The total amount pulled from the funds jumped from £53bn to £91bn in the last two years, an increase of 70 per cent.
AJ Bell said the rise reflected growing concerns from savers of a cap on tax-free cash in pensions, coupled with plans to pull them into the scope of inheritance tax (IHT) from April 2027, warning Healey not to repeat the mistakes of his predecessor Rachel Reeves in letting concerns spiral.
Michael Summersgill, chief executive of AJ Bell, said: “These figures should end any doubt about the real world consequences of allowing pension tax speculation to run unchecked… just as pension providers warned.
“A Chancellor focused on putting households on sound financial footing and boosting growth should see this as an open goal. Confirming pension tax stability would solve the problem overnight without a penny of new Treasury spending, while clearly signalling the government stands behind its promises to savers.”
He added that the cash grab is ultimately bad for “households and the economy”, as it removes billions from long-term pension investment.
IHT shake up
The shake up to the IHT system announced in the 2024 Budget also caused savers to pull cash from their pensions and gift wealth to family members during their lifetime.
Others opted to take their tax-free lump sum early, causing withdrawals to surge by over 20 per cent to £22bn in the last financial year.
Steve Webb, former pensions minister and partner at LCP, said: “It is very worrying that uncertainties about government policy on tax and pensions seems to have driven very high levels of withdrawals from pension pots.
“The speculation around caps on tax free cash was unfounded, but this did not prevent people from rushing to access their pensions, potentially losing out on further investment returns as a result.”
Data from the FCA also showed that more than one million pots were accessed for the first time in the previous tax year, a seven per cent year-on-year rise.
The number of pots raised which held more than £250,000 also jumped nine per cent, up from seven per cent recorded the previous year.
In the run up to last year’s Budget pension providers warned savers against knee-jerk reactions, urging them to wait for previous chancellor Rachel Reeves’ announcements.
Webb urged savers to not repeat their past actions while calling on Healey to provide clarity in the lead up to next month’s Budget.
He said: “We desperately need a period of stability in government tax policy, as continuing uncertainty is destabilising and distorts people’s financial planning”.