Pension crisis as thousands of savers rush to withdraw millions of pounds in 'irreversible' pre-Budget panic

Wealth manager Quilter reported a threefold surge in retirees taking lump-sum withdrawals ahead of the fiscal announcement — far beyond normal activity.

AJ Bell chief Michael Summersgill said his firm also saw hundreds of millions pulled out as speculation grew over potential changes to pension rules.

Financial advisers have since warned that withdrawing tax-free cash early deprives savers of future investment growth, increasing the risk of weaker income later in retirement.

Despite the decisions being irreversible in many cases, withdrawals surged as concern mounted.

Speculation over future limits intensified after the Fabian Society, a Labour-aligned think tank, proposed cutting the current £268,275 tax-free ceiling to only £100,000.

Throughout much of the pre-Budget period, Treasury officials declined to address media enquiries about whether specific measures were under consideration.

This approach marked a departure from previous years, when chancellors' teams typically moved swiftly to dismiss policies floated in the press or by industry figures.

Government sources eventually ruled out any reduction to the tax-free limit approximately a fortnight before the Budget, but experts say this came far too late.

By that point, countless savers had already made their move, fearing they would lose out if they waited any longer to access their entitlement.

Jon Greer, head of retirement policy at Quilter, said: "Lack of clarity and rumour mongering makes people fearfully act just as they did the year before, and when it comes to pensions, that's dangerous.

"Decisions like taking your lump sum are irreversible. If people fear this benefit is under threat, they may act early triggering tax charges or undermining their retirement plans."

He added: "While the Treasury eventually confirmed tax-free cash was safe, that reassurance came very late in the day, too late for those who had already acted on fear. It's a situation of the government's own making, and it highlights why timely communication is essential to protect savers."

Gianpaolo Mantini, chartered financial planner at Saltus, described a "marked increase" in withdrawal enquiries fuelled by the speculation.

He said: "It was an area where clients felt anxious and uncertain. Thankfully, but belatedly, the Treasury confirmed that there would be no changes but by this time it was too late for many."

Mr Mantini explained that clients who withdrew their tax-free cash and subsequently reinvested it elsewhere would face taxation on any investment growth, an outcome they could have avoided by leaving funds within their pension.

HMRC made clear in a September bulletin that those who acted prematurely would bear the consequences, stating that tax outcomes from such decisions "cannot be reversed" and "will normally stand."

The wave of early withdrawals forms part of a broader pattern that emerged following Labour's election victory in summer 2024.

Pension withdrawals climbed nearly 36 per cent during 2024/25, reaching £70.9bn compared with £52.2bn the previous year.

Financial advisers stress that accessing funds prematurely carries significant risks, particularly as longer life expectancies mean retirement savings must stretch across several decades.