On November 26th this year, Chancellor of the Exchequer Rachel Reeves will deliver her Autumn Budget to Parliament. This is a statement on the UK’s economy and government spending plans for the coming year. In the build-up to each Budget and Spring Statement, financial analysts, reporters and the public speculate on potential announcements.

In this article we’ll discuss why speculation has led to some considering withdrawing funds from their pension in advance of the Budget. We’ll explore reasons why you may consider this and drawbacks to early pension withdrawal.

Current speculation surrounding pensions

Speculation has already begun about the contents of the Chancellor’s upcoming budget. In her speech at the recent Labour Party Conference, Reeves acknowledged that there would be tough decisions to be made in coming months. Many feel this may be a hint at a reneging of the manifesto pledge to not raise taxes for working individuals. Due to the continued pressures faced by the global economy as well as planned savings from benefits cuts having to be axed, many feel tax increases may be inevitable.

Many areas are currently subject to speculation, including ISAs, Capital Gains Tax, and pensions. Within pensions, three key areas could be subject to Budget announcements: tax-free withdrawals, tax relief on contributions and annual allowance for pension contributions.

The government previously announced the revival of the Pensions Commission. The goal of this is to explore what may be preventing workers from saving sufficiently into retirement pots. Recommendations will be made for future-proofing the pensions system also. You can find out more about the Pensions Commission, why it has been revived, and its objectives in our recent blog post.

Tax-free withdrawals

Currently, the amount that can be withdrawn tax-free from a pension is 25% of the total pension pot, and is currently capped at £268,275. We may see reductions to the tax-free withdrawal percentage or the capped amount in the November budget.

Tax relief on contributions

Amendments may be made to the level of tax relief available on pension contributions, particularly for higher-rate taxpayers. Currently basic-rate taxpayers enjoy 20% tax relief on pension contributions. This means that for every £100 invested in your pension pot, only £80 will be contributed by you with the additional £20 coming from the government. Extra relief is available for higher- and additional-rate taxpayers equal to their income tax rates of 40% and 45% respectively. There is a chance a single, flat rate of tax relief may be introduced in the Autumn Budget.

Annual allowance for pension contributions

A final area of speculation surrounding pensions is that the annual allowance for pension contributions could be lowered. Tax relief can be claimed by UK taxpayers on personal contributions worth up to 100% of your annual earnings or £60,000, whichever is lower. Exceptions apply to high earners, where a tapered allowance is applicable. If your income exceeds £200,000, please reach out to our advisers for further information about this. If the annual allowance is reduced, you will only be able to claim tax relief on this lower amount.

Recent increase in withdrawals

The speculation about pension changes has been rife for some time now, even pre-dating the Spring Statement in March. This has already had an impact on pension withdrawals. The FCA has announced that in the six months to April 2025, pension withdrawals hit £10.43bn. This is a year-on-year increase of 72%.

Why you may choose to withdraw funds from your pension pot early

For most people, you can withdraw funds from your pension when you reach 55. There is a planned rise in 2028, to 57 years of age. There are a number of reasons why you may choose to withdraw funds from your pension pot before reaching State Pension age, aside from the speculation.

If you are looking to clear debts prior to retirement, by paying off loans and credit cards, a lump sum pension withdrawal can help. Further, you may plan to support members of your family with your withdrawal, for example with a contribution towards a property purchase. You may be planning an early retirement. Pension withdrawals may provide income as a bridge until you are eligible for State Pension payments. You can read about pension essentials you need to know surrounding early retirement, in our recent blog post.

Things to consider regarding early withdrawal from pension pots

Once you withdraw funds from your pension pot, you lose the benefit of tax-free growth*. The 25% tax-free withdrawal amount that you could take now may be significantly lower than what it would be if the funds stayed invested for longer before withdrawal.

Whilst withdrawals have a 25% tax-free allowance, any withdrawals above this are subject to income tax in the usual way. This additional income could also push you into a higher income tax band, costing you more in income tax.

A further consideration is that your pension pot will need to sustain you throughout your retirement. By withdrawing your funds sooner, there will be less available to you in retirement. This may result in you not being able to have the retirement you hope for.

Should you withdraw from your pension before the Autumn Budget?

You should not jump to withdraw funds from your pension solely based on the speculation surrounding pensions. At this stage, it is merely speculation and we would advise against significant financial decisions based on this alone. If, during the Autumn Budget, there is an announcement surrounding changes to pensions, there is likely to be a transition period. Your circumstances can be reviewed at this time, and relevant steps taken.

It is important that you do not make the decision to withdraw funds from your pension pot lightly. We strongly suggest seeking guidance from financial experts, such as the team at Willday Wealth Management, before making any decisions.

If you have any concerns or questions about this speculation, or anything else surrounding your pension pot, contact us: email hi@willdaywm.co.uk or call 0116 222 0119.

*With investing, your capital is at risk and you may get less than what you invested.