John Healey was last night urged to rule out a tax raid on pensions as he scrambles to raise money to fund Labour’s lavish spending plans.
In a letter to the new Chancellor seen by the Mail, the boss of AJ Bell called on him to guarantee that the tax-free lump sum and other incentives to save ‘will not be altered in your first Budget’.
Michael Summersgill said: ‘Such a commitment would stop speculation before it takes hold and demonstrate that this government backs people who do the right thing by setting money aside for their financial future.’
Healey is under pressure to find money for increased defence spending and to fund Andy Burnham’s pledges such as ending rough sleeping, building council houses and easing the business rates burden.
It is feared the pair are planning to hit the middle classes with a fresh barrage of tax hikes in the Budget this autumn to raise the cash required – with pensions among the targets.
Summersgill urged Healey not to repeat the mistakes made by his predecessor Rachel Reeves after she let speculation run wild over a possible cut to the tax-free lump sum.
John Healey is under pressure to find money for Andy Burnham’s spending pledges
This led to a rush of savers withdrawing money from their retirement pots unnecessarily as Reeves eventually decided against such a move.
Pension savers can withdraw up to 25pc of their nest eggs tax-free from the age of 55 up to a maximum of £268,275. It was thought this figure could have been slashed to as little as £40,000.
In his letter to Healey, Summersgill said: ‘As CEO of one of the UK’s largest retail investment platforms, I must express my concern about the impact speculation ahead of both the 2024 and 2025 Budgets has had on the nation’s pension savers, and urge you to act quickly to avoid a repeat of this damaging instability as you prepare your inaugural Budget.
‘Given the challenging economic picture and the need for increased spending in areas such as defence, it is inevitable that a third consecutive Budget will be preceded by uncertainty and speculation over tax policy.
‘While some of this is unavoidable, few areas demonstrate the damage caused by uncertainty more clearly than pensions. Ordinary savers across the UK have changed their retirement plans as a result of previous rounds of speculation, harming both household finances and long-term growth.
‘I firmly believe this can be addressed through an early, public commitment from your office that pensions tax-free cash entitlements will not be altered in your first Budget.’
Pointing to figures from the Financial Conduct Authority showing tax-free cash withdrawals jumped from an average of £7.9bn a year before the 2024 general election to £18.3bn in 2024-25, Summersgill said: ‘It is no exaggeration to suggest pension tax uncertainty resulted in around £10bn being withdrawn early from pensions — potentially depriving savers of tax-free investment growth, putting retirement plans at risk and reducing the pool of capital invested in UK businesses.’
AJ Bell calculations show a worker with a £500,000 pension pot who took out £125,000 at the age of 55 would be as much as £63,000 worse off a decade later.
Calling on Healey to deliver ‘a clear public statement well ahead of your inaugural Budget’ that pensions will not be attacked, Summersgill said: ‘Long-term financial decisions made in response to fear are plainly undesirable and, in many cases, risk leaving people substantially worse off in retirement.’
He added: ‘All that is needed is a clear commitment from the Chancellor that key retirement savings incentives, particularly tax-free cash, will not be altered, at least for the rest of this Parliament.
‘That commitment would give millions of people the confidence to build their pensions for the long term.’
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