Savers Nervous About Upcoming Budget, Fueling Pension Fund Withdrawals

Savers are expressing heightened anxiety about the upcoming budget, with a significant portion fearing it will be more detrimental than previous ones, leading to a renewed outflow of cash from pension funds. A survey by trading platform IG indicates that 63% of savers are more worried about the forthcoming budget, presented by John Healey, than they were about the previous budget under Rachel Reeves.

These concerns have prompted 44% of individuals to withdraw money from their pension funds or plan to do so, driven by fears of changes to tax regulations concerning lump-sum withdrawals. This follows approximately $40 billion withdrawn over the past two years amid speculation surrounding pension tax policies.

"The figures should set alarm bells ringing in the Treasury," stated Michael Healey, chief executive for IG’s consumer business. "The Chancellor cannot afford to let another Budget trigger a stampede on pension savings. With $40 billion already withdrawn in tax-free lump sums over the past two years, the damage caused by pension tax speculation could be felt by people in years to come."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 pensions, the IG poll reveals that 45% of investors have sold or are considering selling assets in anticipation of the budget, citing fears of potential changes to capital gains tax (CGT) or other tax measures. This indicates widespread investor anxiety regardless of the governing party, as individuals worry about bearing the cost of increased national debt and spending.

Previous budgets under Rachel Reeves were marked by uncertainty and speculation, including discussions about potential increases to income tax that were later withdrawn. Persistent, though ultimately unfounded, concerns about tax raids on retirement savings also characterized her tenure.

Current regulations allow pension savers to withdraw up to 25% of their pension pot tax-free, starting at age 55, up to a limit of approximately $268,275. Influential figures within the Labour party have previously suggested that this tax-free lump sum could be a source of government revenue. Torsten Bell, now pensions minister, had previously advocated for reducing this limit to $40,000, which he estimated could generate $2 billion annually.

Despite warnings from industry experts about the negative impact of such speculation, the Labour party has not definitively ruled out changes to pension tax rules. Recent figures show that lump-sum withdrawals from pensions surged to $18 billion in 2024 and $22 billion in 2025, a significant increase compared to the average of $8 billion in prior years.

"People are making decisions about decades of retirement savings based on fears of what the Chancellor might announce," Healey added. "The danger is 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. 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."