Savers pulled billions from pensions as Rachel Reeves ignored professional warnings to rule Budget raids out

Savers rushed to pull billions in lump sums from pension pots in the run-up to the last two Budgets, new figures reveal. 

The surge in withdrawals came as Rachel Reeves refused to rule out slashing tax-free cash limits in both her Autumn Budgets of 2024 and 2025, despite experts warning that worried savers were damaging their future retirement prospects. 

Savers can take out 25 per cent of their pension pot tax-free after the age of 55, up to a cap of £268,275.

Rumours that Reeves was mulling limiting this allowance fuelled a spike in lump sum withdrawals ahead of the Budget in October 2024. Renewed fears ahead of last autumn’s Budget led to a similar race to pull cash out of pots.

Pension savers withdrew £3.9billion in one-off lump sums from defined contribution pensions between October 2024 and October 2025, the most recent period available in ONS figures, according to analysis by pension consultancy Broadstone.

This was up £868million, or 29 per cent, on the previous 12 months and £1.7billion, or 81 per cent, higher than the same period in 2022 to 2023.

Pension experts warned at the time that fears the Chancellor would cut the tax-free lump sum limit were leading some savers to withdraw their lump sums without a plan on how to use them. 

Cash pulled from pots loses the valuable tax benefits of a pension and prospect of future investment gains.

Speaking to This is Money ahead of last autumn’s Budget, Mark Cunningham, partner at accountancy firm Blick Rothenberg, warned ‘speculation is again building’ and urged Rachel Reeves to rule out cutting thelump sum cap if that was not on the cards.

He said: ‘If no changes are intended, it could be seen as irresponsible of the Chancellor not to confirm this in advance, given the previous history and the impact on those approaching retirement.’ 

Lump sum withdrawals hit a peak of £1billion in both the third quarter and fourth quarters of 2024 (June to September and October to December), according to Broadstone. 

The most recent ONS data only runs to the third quarter of 2025 and so will not include withdrawals made in last October and November.

Reeves’ first Budget was on 30 October 2024. After this withdrawals eased before shooting up again ahead of last year’s Budget on 26 November, peaking at £990million in the third quarter of 2025.

Investment platforms and pension firms warned last year that the pattern of savers rushing to pull cash ahead of the Budget was being repeated but the Treasury would not rule out changes, saying it did not comment on speculation.

Last year, investment platform BestInvest said it saw a 33 per cent increase in withdrawal requests on its platform in September 2025, with the size of income withdrawals rising 146 per cent in the period. 

In November 2025, Netwealth told This is Money it saw a 143 per cent jump in tax-free cash withdrawals between the end of June 2024, just before the election, and the end of October 2025. 

In the end, the 25 per cent lump sum allowance was unchanged in both Budgets.

The timing of withdrawal spikes suggests saver behaviour is being influenced by policy uncertainty and speculation around potential changes to the tax treatment of pension lump sums. 

Kelly Parsons, head of defined contribution proposition at Broadstone, said: ‘This data highlights just how sensitive pension savers can be to speculation around tax and policy changes. 

‘It demonstrates the damaging and long-lasting negative impacts that rumour-mongering around pension policy and fiscal events can cause.’

She added: ‘Taking money from a pension is a complex and irreversible decision so it is critical that people aren’t making these important choices based on rumour or without full awareness of the consequences. That’s where better financial education and clearer guidance really do matter.

‘As the defined contribution market grows, employers will have a bigger role to play in supporting people as they navigate these decisions. 

‘That means clearer communication and making sure staff can access the right guidance and support, so they’re not just reacting to headlines but making choices that genuinely support their long-term retirement outcomes.’ 

Experts have said that Reeves should rule out a move in future to prevent the issue re-occuring and also reiterated to savers that they should not make irreversible decisions based on rumours. 

James Carter, head of platform policy at Fidelity International, told This is Money: ‘Speculation can have a real impact on saver behaviour, particularly, as we have seen in the lead up to recent Budget announcements, when it comes to pension lump sum withdrawals.

‘Persistent speculation about potential changes – such as adjustments to tax-free cash or pension tax rules – can create a sense of urgency that encourages people to act before any policy is confirmed.

‘While speculation can be unsettling, it’s important that savers avoid making speculation-based decisions on what may or may not happen.’

How pension tax-free lump sums work?

Savers can typically access up to 25 per cent of their pension pot as a tax-free lump sum but there is a cap of £268,275, which is based on a quarter of the now abolished lifetime allowance of £1,073,100.

You do not have to take your tax-free lump sum when you first access your pension, neither do you have to take it all at once. 

But the rules differ depending on whether you have a defined contribution pension or a defined benefit pension. Some have a mix of both. 

Defined contribution pensions 

Defined contribution pensions involve an employee and employer paying into a pot, which is invested to build a fund for retirement. The worker must then use this pot to generate their own income to retire on. 

Over-55s can take 25 per cent of their pension pot tax-free upfront, or opt to withdraw it gradually in chunks.

By not withdrawing the whole lump sum out at once, if your pot grows in future you will have more tax-free cash available to take in the longer run.

Savers often use their lump sums to clear mortgages and other debts, or splash out on home renovations, new cars and holidays.  

Do remember that you do not need to take the lump sum all at once, or even at all, if you do not have a good reason to spend the money now.

Consider whether you will need the money later if you are in good health and all being well could live a long time.

When you take anything over and above your 25 per cent lump sum from a defined contribution pension, from then onwards you can only contribute £10,000 a year and still get tax relief.

Defined benefit pensions

Defined benefit pensions, known as final salary or career average schemes, provide a guaranteed income from your previous employer after retirement for the rest of your life.

Unless you work in the public sector, these have been mostly replaced by defined contribution pensions. But many people nearing retirement will have accrued benefits before the schemes were closed to new members.

If you have a defined benefit pension, your options for a 25 per cent lump sum vary according to the generosity of the terms and conditions of your scheme, so you must check the details, including the minimum pension age.

The tax-free lump sum is available when you first start drawing a defined benefit pension, but not later on.

What major pension changes ARE happening?

The Chancellor has already announced a number of major changes to how pensions work and are treated for tax purposes.  

From April 2027, unspent pension pots will be pulled into the inheritance tax net. 

Those who die after the age of 75 will see their pots hit by both inheritance tax and levied on beneficiaries.

Thousands of savers risk large inheritance tax bills on their estate due to this.

From 2029, the amount that workers can salary sacrifice into their pensions without paying National Insurance will be capped at £2,000 a year. Those wanting to add any more to their pensions via salary sacrifice will have to shell out more in tax.

Data has shown that that those on middle incomes are set to be worst hit by the change, with some having to pay £256 more in National Insurance from 2026 – while those earning more could pay just £72 extra.