AJ Bell urges Chancellor to tax-lock pensions
Advising against touching pension provisions in his initial fiscal statement on 28 October, AJ Bell has urged Chancellor John Healey to keep them separate.
In preparation for the upcoming budget, the organization pointed out several recent shifts in pension policy. Prime Minister Andy Burnham is set to swap the state pension triple lock for a “double lock” starting in 2030. Furthermore, the administration intends to ensure no tax liability for the lowest earners once the state pension surpasses the personal allowance beginning next April.
Rachel Vahey, AJ Bell’s head of public policy, explained that the 3.9 per cent rise for April will be contingent on the inflation report released this month. This adjustment is projected to cause the state pension to exceed the personal allowance for the very first time.
Although the government has guaranteed that the lowest earners will not be taxed on this new amount, Vahey noted the specifics remain ambiguous. We must wait for the Budget to determine exactly who qualifies for this pledge – and who does not.
According to the latest data from the Financial Conduct Authority, pension tax-free cash withdrawals in 2025/26 hit a level £14 billion above the pre-election average.
Vahey warned that significant alterations are on the horizon for the new tax year, specifically regarding unused funds and inheritance tax. However, she cautioned that rumors regarding further changes could cause substantial harm.
She observed that the tangible repercussions became evident over the last two years. When rumors circulated regarding the future of tax-free cash, payments jumped to £22 billion, representing a £14 billion increase compared to the average prior to the election.
This situation is unfavorable for families and the broader economy. It forces some individuals to make irreversible choices that could harm their financial well-being, while also reducing the pool of capital available for long-term investment.
Consequently, AJ Bell has reiterated its request for a pension tax lock, asking the government to pledge to maintain current pension tax benefits for the rest of the parliamentary term.
It would impose no cost on the Treasury, Vahey argued, while providing savers with certainty and signaling that the government honors its pension commitments.
