Savers Flee Pension Funds Amid Fears of Healey's Budget Policies

Savers are exhibiting increased nervousness about Chancellor John Healey's upcoming Budget, with a recent survey by trading platform IG suggesting greater apprehension than before the previous Budget under Rachel Reeves. This anxiety has prompted a notable outflow of cash from pension funds.

According to IG's figures, 63% of savers express more worry about Healey's debut Budget, scheduled in two and a half weeks, compared to their concerns leading up to last year's fiscal announcement. The data also reveals that 44% of savers have either withdrawn funds from their pensions or plan to do so, driven by fears of impending changes to tax rules on lump-sum withdrawals.

This trend adds to the approximately £40 billion already withdrawn from pension funds over the past two years, a period marked by saver concerns surrounding potential adjustments under Rachel Reeves.

Michael Healey, chief executive for IG’s consumer business, stated that the findings "should set alarm bells ringing in the Treasury." He cautioned that "the Chancellor cannot afford to let another Budget trigger a stampede on pension savings." He further noted that "With £40 billion already withdrawn in tax-free lump sums over the past two years, the damage caused by pension tax speculation could be felt by people in years to come."

Beyond pension funds, IG's poll also indicates that 45% of investors have sold or are considering selling assets in anticipation of the Budget. This action is largely due to concerns about potential changes to capital gains tax (CGT) or other taxation policies.

The survey highlights growing investor anxiety, irrespective of the specific Labour Chancellor in charge, as individuals worry about bearing the financial implications of the government's debt and spending.

This heightened concern persists despite Healey's efforts to distance his approach from Reeves's tenure, acknowledging that her policies had "eroded prosperity."

Reeves faced criticism for months of speculation preceding her last Budget, including an uncharacteristic press conference where she hinted at potential income tax increases before reversing course. Her previous Budgets were also characterized by persistent, though ultimately unfounded, worries about a potential tax raid on retirement savings.

Under current regulations, individuals can withdraw up to 25% of their pension savings tax-free from the age of 55, up to a limit of £268,275. Influential figures within the Labour party have previously identified this tax-free lump sum as a potential source of revenue. Torsten Bell, now the pensions minister, suggested in 2023 that "a future government may well cut" this limit, and in 2019, advocated for reducing it to £40,000 to generate £2 billion annually.

Labour has not definitively ruled out changes to pension tax rules, despite industry warnings about the damaging effect of such speculation. Figures released last month showed that lump-sum withdrawals significantly increased, reaching £18 billion in 2024 and £22 billion in 2025, a substantial rise from the average of £8 billion in previous years.

IG's Healey commented on the behavioral impact, stating, "People are making decisions about decades of retirement savings based on fears of what the Chancellor might announce." He warned of the risk that "people rush to protect their money from a tax change that may never materialise, only to sacrifice years of potential investment growth and leave themselves worse off in retirement."

He added, "The Government wants to encourage more people to invest for the long term, yet the uncertainty surrounding pensions - and the ongoing Capital Gains Tax rumours - risk achieving the exact opposite. Hopefully, we will see the Chancellor put an end to this speculation and give investors and pension savers the certainty they need."