On November 26th, the Chancellor of the Exchequer will detail the Autumn Budget for 2025. This is a statement on the state of the UK economy and any measures being put in place to boost finances. In the run-up to every Autumn Budget or Spring Statement there is a flurry of speculation. If taken as fact, this can lead to financial decisions being taken by individuals to lessen the potential impact, unnecessarily. One area of speculation is pensions, specifically the pension lump sum allowance.
In this Speculation Snapshot article, we’ll discuss the speculation about the pension lump sum allowance, and our advice surrounding it.
What is the pension lump sum allowance?
Currently, usually after the age of 55, you are able to withdraw up to 25% of your pension pot, tax-free. This is capped, for most people, at £268,275. If more than this is withdrawn, it will be considered as income, and taxed accordingly.
What is the speculation surrounding the pension lump sum allowance?
Speculation is rife that the cap for tax-free withdrawals will be lowered to £100,000, with some analysts suggesting it could reduce as low as £40,000. The government will be making decisions to raise revenue, and this often comes in the form of tax. By lowering the pension lump sum allowance cap, more pension withdrawals will have tax applied. As amounts over the cap are considered as income, this could move individuals into a higher tax band, meaning a higher tax rate would be applied.
What has been the reaction to this speculation?
Financial and wealth management companies across the UK have reported significant increases in enquiries about whether lump sums should be taken from pensions before the Budget. Internal data released by deVere Group and reported in Financial Reporter show a 45% rise in enquiries over the past month alone. It is understandable that clients are questioning how their retirement plans may be impacted. However, it is important to realise speculation is just that – it is not yet fact. That said, it’s important to remain calm and avoid making decisions based on speculation until official details are confirmed. Rest assured, once any official details are released, we’ll be ready to help you assess their impact and respond accordingly.
What is our current advice to clients?
It’s impossible to give a one-size-fits-all piece of advice as this will depend on your individual circumstances. However knee-jerk reactions would be ill-advised. More can be read about withdrawing from your pension pot early in our recent blog post.
Generally speaking, our advice is not to make high impacting financial decisions based on what is, as this stage, just speculation. Pension changes often form part of the speculation before any Budget, so this is not necessarily an indication of what is to come. These rumours also surfaced ahead of the budget in October 2025.
If, however, the Chancellor does make changes to the lump sum allowance, it will have a vast impact on people’s retirement. If more of your pension pot is taken as tax, there is less available for your retirement. It is likely that if the Chancellor makes changes to the pension lump sum allowance, there will be a period of time before it comes into practice. This is so that those on the brink of retiring have time to make financial adjustments as necessary.
Should any announcements be made in the Autumn Statement, affecting your pension or ISA savings, contact our team. Email hi@willdaywm.co.uk or call us on 0116 222 0119. We’ll discuss your circumstances with you, and help you make the best decision based on these.
