Investing Insiders Blog: Pension withdrawals rise in response to Budget policy fears

New data from the City watchdog, the Financial Conduct Authority, shows a huge increase in the amount of money being withdrawn from pensions over the past year, rising by 36% to £70.9 billion in 2024/25, up from £52.2 billion the previous year.

The total number of pensions accessed for the first time jumped 8.6% to 961,575, up from 885,455.

The figures began rising in the months before the Autumn Budget and then jumped in the months following the Budget, suggesting people began accessing their pots in response to speculation around cuts to tax-free lump sums and changes to bring pensions into the scope of inheritance tax.

Laura Purkess, personal finance expert at Investing Insiders, said: “There has long been concern that uncertainty around government policy is leading people to make rash decisions with their money, and the latest FCA figures appear to solidify those concerns.

It’s no coincidence that the numbers began rising ahead of the last Budget amid rife speculation that the government was looking to scrap or cap pension tax-free lump sums, which is deeply concerning.

People clearly shouldn’t be making big decisions about their finances based on speculation alone, as often those rumours don’t come to fruition, as was the case with fears about tax-free lump sums being cut – but who can blame them when the rule book is constantly being changed and there is so much policy uncertainty?

The government needs to get a grip on rumours circulating so far ahead of Budgets and address speculation that could damage people’s finances.

The figures jumped again between October 2024 and March this year, after plans were confirmed to bring pensions into the scope of inheritance tax, suggesting a knee-jerk reaction to the news. This is still concerning as in many cases, this may not have been the best course of action.

For anyone thinking of making a decision about their finances in response to headlines or policy changes, consider speaking to a professional first.

A financial adviser can help you work out what the best move is for you right now, and if there are any changes in the Budget, they will be able to act swiftly to ensure you are still in the best position.

It’s also important to remember that most big policy changes announced in Budgets do not come into effect immediately. For example, the IHT changes announced to pensions last year are still over a year away from coming into effect.

The best thing you can do at any time is to ensure your finances are in the best shape possible and not make rash decisions based on rumours or fears about the future.”

 

Contactless card payments could increase above £100 and potentially become unlimited under new proposals from the Financial Conduct Authority (FCA).

The proposed changes aim to offer customers more “convenience” and give card providers the “flexibility to decide the right limit for them and their customers.”

Under current FCA rules, customers can only make payments of up to £100 when tapping a debit or credit card – instead of using a four-digit PIN.

There’s also a cap of £300 on contactless spending per day before a customer must input their PIN. However, this varies between providers and many set a lower limit.

Increasing the limit would bring contactless card payments in line with those made through digital wallets on smartphones such as Apple Pay or Google Pay – which are unlimited.

Contactless cards were first introduced in 2007 with a payment limit of £10. It crept over five years before jumping to £45 during the Covid pandemic.

The latest payment limit increase to £100 came into effect in October 2021.

The chart below shows how the contactless card limit has changed over time:

The FCA is consulting on the proposals until 15 October 2025. If approved, the changes come into effect from early next year.

Are contactless card payments secure?
Contactless card payments come with the same protection as any other card payments. That means banks must provide compensation for unauthorised fraud cases.

Currently, fraud rates for contactless card payments are relatively low.

Around 1.3p per £100 spent on contactless cards is fraudulent compared to 6p per £100 of unauthorised card payments overall, according to UK Finance’s annual fraud report.

Keeping on top of your budget

Another rise in the contactless card limit could make it easier to spend more. So making a budget is more important than ever.

Using a budgeting app is a great way to keep an eye on your spending and set money aside into an emergency fund to cover any unexpected expenses.

It’s also worth maximising any spending insights offered by your card provider.

Most digital bank accounts offer advanced analytics to help you understand your spending habits and create a budget to keep your finances on the right track.