New Chancellor John Healey has been issued a savings warning by financial experts ahead of his first Budget this year.

Savers who take out tax-free cash too early could end up costing themselves a staggering £63,000, warns AJ Bell

The investment platform has written to the new Chancellor of the Exchequer, who takes over from predecessor Rachel Reeves in the new government under Prime Minister Andy Burnham, to ask that pension tax-free rules are not hammered in the upcoming Budget in November.

Currently, people can access their private pensions at age 55, rising to 57, and are able to take a 25% lump-sum cash free. This comes after years of tax-free pension contributions are made.

Someone aged 55 who took out their full lump sum allowance from a pension pot worth £500,000 and added it into a cash savings account paying an average 4% could be £63,169 worse off by the age of 65, according to AJ Bell, because they would miss out on years of investment growth on that pension.

Financial Conduct Authority figures show that tax-free pension withdrawals clocked in at an average of £7.9Billion between 2018 and 2023, before more than doubling to £18.3Billion in 2024-25.

AJ Bell thinks that the massive jump was caused by speculation that the government was about to reduce the amount that savers could withdraw from their pensions without paying tax.

It called for a ‘Pension Tax Lock’ which would focus on protecting tax-free lump sum withdrawals and guarantee pension tax relief.

CEO Michael Summersgill said: “Pension providers raised alarm bells at both the 2024 and 2025 Budgets, warning that cash was being withdrawn from long-term pension investments and parked in the bank due to rumours around the future of tax-free cash.

“The FCA’s own data indicates that at the 2024 Budget alone savers pulled an additional £10bn. That’s money being taken out of long-term investments, which is bad for the economy and bad for people’s long-term retirement plans.

“Although data is yet to be published for 2025, the experience of pension firms across the industry indicates the trend is only getting worse.”

He added that new Chancelor John Healey represents a chance to fix the ‘festering’ rumours and guarantee certainty for pensions, which in turn avoids these runs on savings withdrawals.

He said: “The appointment of a new Chancellor presents an opportunity to finally draw a line under this issue, preventing a repeat when John Healey comes to deliver his first Budget.”