The £40bn pension pot panic: Burnham urged to rule out Budget raid on tax-free lump sums after surge of withdrawals under Reeves

Labour has been urged to rule out a Budget raid on pensions after it emerged savers withdrew £40billion in tax-free lump sums in just two years under Rachel Reeves.Analysis of official figures by investment firm AJ Bell showed tax-free cash withdrawals rocketed to £22billion last year from an ‘already elevated’ £18billion the previous year.That compares with an average of less than £8billion a year prior to the 2024 general election.Industry experts said the rush to cash in tax-free lump sums was triggered by speculation of a raid on retirement pots ahead of Ms Reeves’ two Budgets in October 2024 and November 2025.It is feared there will be a repeat in the coming weeks as savers panic over what Andy Burnham and John Healey are planning in his Budget on October 28. Andy Burnham has been urged not to repeat the mistakes of the Chancellor he sacked, Rachel Reeves Pension savers can currently withdraw up to 25 per cent of their nest eggs tax-free from the age of 55 up to a maximum of £268,275.Rumours that Ms Reeves was plotting an attack on the tax-free lump sum proved particularly damaging ahead of her Budgets as savers rushed to withdraw money from the retirement pots.The former Chancellor eventually decided against such a change – leaving those who acted worse off having made irreversible decisions likely to leave them poorer in retirement.Mr Healey, who succeeded Ms Reeves when she was sacked by Andy Burnham, has now been urged to rule out a tax raid on pensions to bring much-needed certainty to savers worried about their retirement plans.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. The rush to take tax-free cash began in 2024 and the latest FCA data confirms another repeat around the 2025 Budget, just as pension providers warned.‘This trend is bad for households and bad for the economy - pulling billions of pounds out of pensions prematurely reduces the capital available for long-term investment.‘A Chancellor focussed 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.’The comments were echoed by others in the industry.Former pensions minister Sir Steve Webb, now of retirement consultancy LCP, said: ‘It is deeply destabilising for the pension system to have uncertainty about changes in the tax regime, and many people may have rushed to take money out prematurely and possibly harmed their retirement by doing so.’ Don't wait until Budget day. You need to start protecting yourself nowI'm Simon Lambert, publisher of This Is Money, and you need to know that your pension, savings and property could soon be under attack. On October 28, Andy Burnham’s government will set out its Budget. We don't know what they will do and it is vital you don't act on speculation, but we do know about tax raids already on the way. So I've called on some of Britain’s leading financial experts to create my new six-week plan. I'll cut through the noise and take you step-by-step through everything you need to do to protect your money. Don’t wait. Click here and sign up to Protect Your Money now. Becky O'Connor, head of pensions at PensionBee, said: ‘Savers know what they want from this Budget: more room to save, protection from the creeping tax burden on retirement income, and certainty that the rules will not keep changing on them.‘Whatever John Healey decides, he is starting from a position of low trust when it comes to pensions. A clear, early signal on the tax-free lump sum as a starting point would cost nothing and could go a long way to restoring faith.’Claire Exley, head of financial advice and guidance at JP Morgan Personal Investing, said: ‘Tax speculation and pension uncertainty may be influencing how people in the UK are managing their retirement savings.‘UK Budgets have felt increasingly high stakes in recent times as the Government’s fiscal headroom has narrowed and tough choices on tax and spend have seemed inevitable. As a result, these events have often been dogged by speculation about potential changes to pension tax rules, in turn, creating uncertainty for savers.‘That speculation has been unsettling for those approaching or in retirement, who may feel pressured to act sooner than planned. We have seen this dynamic among clients over the last two years in the run‑up to the Budgets who felt the need to act early for fear of future rule changes.’AJ Bell is campaigning for a ‘pensions tax lock’ that guarantees there will be no major changes throughout this Parliament ‘to put an end to uncertainty’ that has proved so damaging so far.The firm noted that the £40billion withdrawn in tax-free lump sums was ‘more than in the entirety of the five-year period from 2018-19 to 2022-23 before the General Election campaign’.‘Constant 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,’ it said.‘This is an unacceptable position given pensions form the cornerstone of long-term financial planning and personal financial responsibility.‘Furthermore, it runs counter to wider government efforts to boost pensions adequacy and drive greater levels of investment, including in the UK economy.’Protect Your Money – sign-up to our six-week plan The Budget is coming – but are you prepared? 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