Pensions Minister calls 25% tax-free cash cut rumour “garbage”

The Pensions Minister, Torsten Bell, has called rumours that the government may limit or abolish the 25% tax-free pension lump sum “garbage”.

Asked about the speculation by a Citywire reporter, Bell said: “Some pension savers have been very badly let down by newspapers writing garbage and they should stop it because it has caused a lot of problems over the last few years. Some people have lost serious money.”

Speculation circulated widely in the lead-up to the previous two Budgets, and is again swirling in the run up to this year’s Autumn Budget on October 28th, that the government could lower the percentage – or the cap – that pension savers are entitled to take from their pension pot without having to pay any tax.

Currently, savers are allowed to take 25% (capped at £268,275) of their pension pot tax-free once they reach the age of 55 (rising to 57 in April 2028).

Press speculation was blamed for a 60% rise in people withdrawing their tax-free cash between the 2024 and 2025 financial years.

As we’ve previously cautioned, taking irreversibly decisions based on pre-Budget rumours could be something you come to regret. Those who rushed to withdraw their tax-free cash in advance of last year’s Budget, only to find the policy didn’t get a mention from the Chancellor, could have discovered that unless they had plans to immediately spend the cash, there are significant challenges with keeping it untaxed once it is withdrawn from the protection wrapper of a pension. The annual allowance for deposits into an ISA is just £20,000, and the Personal Savings Allowance only allows a maximum of £1,000 of interest to be earned in regular savings accounts before tax is due. That allowance drops to £500 for higher-rate taxpayers, and zero if you’re an additional-rate taxpayer.

Wondering whether to withdraw or wait? We’ve got guidance on this topic from pensions expert, Tom McPhail, on our podcast. Listen now for his advice.

And if you’d like personalised advice from an Independent Financial Advice, use our matching service to find a qualified professional.