Rachel Reeves urged to rule out 'knee-jerk' pension tax raid in Budget as savers face uncertainty

The uncertainty has pushed some savers to take money out of their pensions early, worried the government could change the rules. But financial experts say these panic moves could be costly, as once money is withdrawn it stops growing tax-free inside pension pots.

A petition started by investment firm AJ Bell is calling on the government to keep the current tax-free cash rules. It has already gained more than 2,000 signatures and is growing quickly as the November 26 Budget gets closer.

Two former pensions ministers have also demanded answers. Baroness Ros Altmann warned that lowering the allowance would be seen as a "hit the rich" policy but in reality would mostly hurt middle-class families.

Baroness Altmann added: "It is so important that the Chancellor does not make knee-jerk changes to pension rules."

She highlighted how speculation alone has driven people to withdraw funds unnecessarily, causing them to "lose the chance of earning higher tax-free returns over time in their pension."

Steve Webb, now a partner at pension consultants LCP, echoed these concerns. "Pensions are a long-term business and constant short-term speculation can be very damaging," he stated, arguing the government should pledge to preserve pension tax relief until the next election at minimum.

Under existing regulations, savers can access 25 per cent of their pension pot without paying tax once they reach 55 years of age. This tax-free portion is capped at £268,275, a threshold that many believe could become a target as the Chancellor seeks to address an estimated £30billion fiscal gap.

Similar fears emerged before last year's Budget, resulting in a surge of withdrawals that ultimately proved unnecessary when no changes materialised.

Wealth manager Rathbones recently revealed that premature pension withdrawals ranked among savers' greatest financial regrets from that period.

The pattern appears to be repeating, with rising withdrawal rates as speculation intensifies. Once funds leave a pension scheme, reinstatement becomes nearly impossible, permanently forfeiting the tax-advantaged growth potential.

The parliamentary petition calling for a "Pension Tax Lock" has attracted significant attention since its launch. At 10,000 signatures, the government must provide an official response, whilst 100,000 would trigger consideration for parliamentary debate.

Tom Selby from AJ Bell emphasised the fundamental agreement between savers and government. "When people save in a pension, they enter into a tax pact with the Government," he explained, noting that workers sacrifice current income based on established tax arrangements including the 25 per cent tax-free element.

The petition argues that introducing such a lock would cost nothing to the Treasury whilst restoring confidence in retirement planning. Campaigners believe this commitment would end the damaging cycle of pre-Budget speculation that leads to poor financial decisions.

Treasury officials have declined to address the mounting speculation directly. "We do not comment on speculation around tax changes, but remain committed to encouraging pension saving," a Treasury spokesman stated.

The controversy highlights broader concerns about retirement planning stability. Interactive Investor noted that Chancellor Reeves had previously told Sky News in November last year that she was "not coming back with more borrowing or more taxes," though circumstances have since shifted significantly.

Financial advisers stress that maintaining low tax bills in retirement remains crucial for wealth preservation. The tax-free cash component represents a fundamental pillar of Britain's retirement savings framework, making any potential changes particularly sensitive for millions planning their financial futures.