Andy Burnham’s new chancellor has been urged by finance experts to promise not to make changes to the pension tax-free lump sum – and avoid one of Rachel Reeves’ worst mistakes.

When UK adults get to retirement age, they have the option to take tax-free money out of their pension by withdrawing 25 per cent of the total sum in one go, known as lump sum.

For those who opt to take the lump sum withdrawal cannot later change their mind and put it back. It takes down by a quarter the overall value of their pension which might otherwise continue to compound for years more – producing greater retirement cover when they really need it most.

As chancellor, Ms Reeves failed to deny rumours that lump sum withdrawals would be taxed in future, prompting Brits to remove a collective £10bn from their retirement savings in 2024/25 out of fear of losing money.

John Healey, who has confirmed the date of the Budget for October 28, is now being urged to come clean and confirm if there are no planned changes to pension taxation in a bid to avoid a costly repeat scenario at a times when household finances are already under stresses.

Lisa Picardo, chief business officer at PensionBee, said: “We've previously warned that the pension tax-free lump sum is a cornerstone of retirement planning, and previous budgets have shown exactly what happens when a chancellor leaves that in doubt for months on end: some savers panic, withdraw pre-emptively, often to their own detriment, and later regret this when it cannot be reversed.

“With the budget date now confirmed, John Healey has an early opportunity to break that cycle of speculation by ruling out further tinkering with pension tax relief well before 28 October, rather than let uncertainty do the damage a policy never did.”

Data from the Financial Conduct Authority (FCA), shown by AJ Bell, highlights that the average value of lump sum withdrawals each year from 2018 to 2023 was £7.9bn.

But in 24/25, that rocketed to £18.3bn, with AJ Bell’s public policy director Tom Selby pointing out that merely confirming nothing is changing would cost the Treasury nothing, in contrast to some of Healy’s and Burnham’s early moves which are being scrutinised for their funding.

“One policy commitment that would reassure voters without costing a penny in new Treasury spending is a long-lasting commitment to pension tax stability,” Mr Selby said.

“The last two budgets were dogged by constant rumour and speculation over a potential raid on pensions tax-free cash. Those rumours were allowed to fester, creating uncertainty over whether the government was committed to the long-term pension tax pact it enters into when people set money aside for retirement.

“A pledge not to meddle with people’s savings would show this government supports savers and retirees, and avoid a repeat of the last two fiscal events where billions exited long-term investments, starving the UK of valuable investment capital and damaging people’s retirement prospects in the process."