Chancellor Rachel Reeves has no plans to reduce the tax-free lump sum, according to Treasury officials.
The confirmation provides temporary relief to pension savers following weeks of speculation that the 25 per cent tax-free allowance could be reduced or capped.
Under current rules, individuals can withdraw up to a quarter of their pension savings tax-free, subject to a lifetime cap of £268,275. While the Treasury has confirmed no immediate changes, industry observers say uncertainty will continue in the absence of a clear government commitment to pension tax stability.
The speculation ahead of the November Budget led to financial advisers reporting a rise in client enquiries, with DeVere Group saying it has seen a 45 per cent increase in questions about accessing tax-free cash over the last month.
Meanwhile, AJ Bell has renewed its call for a Pension Tax Lock, which would guarantee no changes to core pension tax incentives, including tax-free cash and tax relief on contributions, for the remainder of this Parliament. The firm argues that speculation ahead of each Budget undermines saver confidence and leads to rushed and potentially irreversible financial decisions.
A petition launched by AJ Bell in October calling for a Pension Tax Lock has now attracted over 20,000 signatures. The Government responded on 22 October, outlining its broader pensions reform agenda, but did not address the request for a formal commitment to tax stability. The Petitions Committee has since asked the Treasury to issue a revised response.
AJ Bell director of public policy Tom Selby says leaving tax-free cash untouched was “good news” for savers but warned that continued uncertainty could damage confidence in long-term saving.
The Government says it remains committed to ensuring the pensions system is “strong, fair and sustainable” and has launched a two-phase review, including a new Pensions Commission, to consider long-term reforms.
Selby, says: “Attacking tax-free cash at the Budget would have been a massive own goal from the chancellor, raising little money and causing uproar from young and old alike.
“It would also likely have led to further industrial action from public sector trade unions, including senior NHS staff, at a time when public services are already creaking.
“No change to tax-free cash entitlements at the Budget is clearly good news but what we really need from this government is a lasting commitment to long-term stability so people can plan for the future with confidence.
“While any changes to pension tax relief would almost certainly come with protections for those close to retirement, it is entirely understandable that people are concerned by the speculation witnessed in recent months. When you save diligently throughout your career you deserve the right to plan ahead without the threat that government may move the goalposts before you can access your money.
“Constant rumour and speculation will damage confidence in long-term saving, lead people to make short-term decisions that may be bad for their long-term financial health, and cause wariness about household spending choices for fear government tinkering may upend financial plans. How many people will have taken a ‘wait and see’ approach to booking a holiday of a lifetime or pressed pause on a house refurbishment because they can’t trust government not to make a mess of their financial plans?
“That is clearly contradictory to the government’s growth agenda, as well as the stated aim of boosting long-term investing and pension adequacy.
“Instead of stumbling from Budget-to-Budget with constant speculation about pensions tax-free cash and tax relief on contributions, the chancellor should make a long-term commitment to a Pension Tax Lock – a pledge not to change tax-free cash entitlements or tax relief on contributions, at least for the rest of this Parliament. This would very clearly put the government on the side of hard-working savers and would cost nothing to deliver.”