There has been a surge in the number of over 55s seeking to withdraw cash from their pensions ahead of the Budget amid fears there will be a change to the rules.
Online investment platform Bestinvest said it saw a 33 per cent increase in self-invested personal pensions (SIPP) withdrawal requests in September when compared to the previous two-year average.
It also saw the amount of cash being withdrawn rise, climbing 146 per cent in September.
Currently, pension savers can take out a 25 per cent tax-free lump sum up to a maximum of £268,275 from their pensions from the age of 55 – but there are fears that the lump sum could be reduced in the Budget next month.
While running the Resolution Foundation think-tank, Torsten Bell, now Labour’s pensions minister, advocated in favour of reducing the tax-free lump sum.
Similar speculation swirled last year ahead of the Autumn Budget, prompting a wave in pre-emptive withdrawals from pensions.
How big is the issue?
A number of experts told The i Paper they had seen an increase in requests pertaining to possible tax changes.
There are further concerns over inheritance tax (IHT) over changes taking place in April 2027 when unused defined benefit pension contributions will be included in someone’s estate for IHT purposes.
Bestinvest said it had seen many radically change their approach to pension saving – choosing to withdraw pension funds to spend or gift rather than risk their beneficiaries being hit with a heavy tax bill on their death.
RBS Wealth Management said its survey of wealthy pensioners found that 56 per cent of respondents plan to spend more of their pension following the government’s plans to include them in estates and make them liable for IHT.
Andrea Tarasheva, wealth planner at RBC, said: “In some extreme cases, individuals are deciding to take out larger amounts bringing them into the additional income tax rate and gifting large sums to family members.
“They are doing this in the hope that it will begin the seven-year countdown for the gifted funds being exempt from IHT and so the money can grow with the new owners without having to worry about an IHT liability further down the line.”
Online investment platform interactive investor (ii) saw a 61 per cent increase in tax-free lump sum Sipp withdrawals in August 2025 when compared to the same month a year ago.
Hargreaves Lansdown and Vanguard UK both said they had also seen an increase in enquiries regarding tax changes ahead of the Budget.
Experts have called on the Government for clarity ahead of the Budget to avoid people making rash decisions with their money.
Craig Rickman, a personal finance expert at ii, said: “It would be an enormous help if the government could commit to leaving the pension tax system alone this autumn, offering savers the consistency they need to manage their retirement funds with clarity and confidence.”
While Reeves did not tighten the rules in last year’s Budget, there was still an unprecedented 60 per cent rise in tax-free cash pulled from pensions in the last tax year, amounting to £18bn, according to official figures.
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James Norton, head of retirement and investments at Vanguard UK, said: “We would caution investors on letting speculation cloud their judgement.
“We saw a very similar situation last year when the talk about tax-free cash changes prompted many to withdraw cash from their pensions in anticipation of a Budget announcement that never came.
“Afterwards, many tried to reverse their decisions, and put the tax-free cash back into their pension, which, unfortunately, can’t be done.”
Christopher Hallam, head of financial planning at First Wealth, said he had seen an upturn in the number of people asking specifically about pension withdrawals.
He said: “We’re seeing people make big financial decisions on the basis of speculation, not strategy. And that’s risky. Pensions are long-term investments, designed to support you for decades. Dismantling them prematurely, especially without a clear plan, can do real harm to your future financial wellbeing.
“What worries us more is the growing distrust in the whole system. When the rules keep shifting, people start asking whether saving into pensions is even worth it. That’s a problem.”
What should pension savers do?
Experts say people should avoid making hasty decisions about pension withdrawals on the basis of speculation surrounding this or any future Budgets.
Haine warned: “Taking tax-free cash prematurely as a knee-jerk reaction to a possible policy change can undermine retirement plans and prove to be tax inefficient.
“Moving a large sum out of a protected tax-wrapper, like a pension, into a taxable environment such as a bank or building society savings account can counteract the gain someone makes from making the tax-free withdrawal in the first place.”
Pension savers should also be aware that HMRC and the Financial Conduct Authority have said that pension platforms should not permit savers to reverse their lump-sum withdrawal decision.
This means if you extract your lump-sum, you are unlikely to be able to change your mind at a later date.
Consider getting professional financial advice if you are contemplating withdrawing any tax-free cash from your pensions. Think carefully about whether you will need the money later on in your retirement more than you do now.
Remember that when you take anything over and above your 25 per cent lump sum from a defined contribution pension, from then onwards you can only contribute £10,000 per year and still get tax relief.
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