More than 19,000 people have signed an online petition calling for changes to pension withdrawals in the Autumn Budget.

The UK Government has not ruled out proposals in an online petition calling for Chancellor Rachel Reeves to introduce a ‘Pension Tax Lock’ at the Autumn Budget to “help protect retirement savings and incentives”. More than 19,000 people have signed the e-petition on the Petitions Parliament website.

Petition creator Michael Glenister is calling for a commitment from the UK Government “not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions”.

The campaigner believes such a move would “help ensure retirement savings are protected and people can save with confidence”. He also argues that such a measure would “put an end to the speculation seen ahead of every Budget”.

READ MORE: Personal Allowance income tax threshold of £12,570 could increase at Autumn BudgetREAD MORE: People taking money out of private or workplace pensions could be due £3,800 tax refund

Something he claims “erodes confidence in long-term saving and can all-too-often lead to people making poor, sometimes irreversible, financial decisions”.

In a written response to the proposals, the Treasury said: “The Government wishes to encourage pension saving, to help ensure that people have an income, or funds on which they can draw on, throughout retirement.”

It went on to explain that for the majority of savers, pension contributions made from income during working life are tax-free – this is known as ‘pensions tax relief’ and is available at an individual’s marginal rate.

The Treasury continued: “For example, contributions from a basic rate (20 per cent) taxpayer who contributes to a registered pension scheme in 2025/26 receives tax relief at 20 per cent. This makes pensions tax relief one of the most expensive reliefs in the personal tax system, costing £78 billion in 2023/24.”

Investment growth of assets in a pension scheme is also not subject to tax.

From age 55 (or when scheme rules allow a pension to be taken), up to 25 per cent of the pension can be taken tax-free (capped for most at a maximum of £268,275), depending on scheme rules.

Pension income received (for example as a regular annuity payment or as income drawn down from a pension) is subject to income tax at an individual’s marginal rate, to reflect the fact that pensions in payment are a form of deferred income and have not been previously taxed.

Directly addressing the proposal of a ‘Pension Tax Lock’, the Treasury said: “The Government does not comment on proposed tax changes or tax related speculation ahead of Budgets.

“The Government recognises the importance of promoting confidence in pension saving and is committed to ensuring future generations of pensioners have security in retirement. This is why the government announced a landmark two-phased review of the pensions system days after coming into office.”

The Autumn Budget will be announced in Parliament on November 26.

You can read the full response to the ‘Introduce a Pension Tax Lock to help protect retirement savings and incentives’ petition on the Petitions Parliament website.

At 100,000 signatures, it will be considered by the Petitions Committee for debate in parliament.

Tax refunds on pension withdrawals

HM Revenue and Customs (HMRC) issued £48.7 million in refunds between April 1 to June 30 for overpaid tax on pension withdrawals.

Retirement expert Helen Morrissey said that the latest data from HMRC indicates close to 13,000 refund forms were processed during this time with the average refund worth around £3,800.

Ms Morrissey explained that people accessing a lump sum from their pension for the first time can be taxed too much. The main reason is that the HMRC system mistakenly believes that the same amount will be withdrawn every month, which can lead to an unexpected tax bill.

However, the head of retirement analysis at Hargreaves Lansdown explains the money can be reclaimed from HMRC, but it can be an ‘admin headache’.

Ms Morrissey said: “The overpaid pension tax saga continues to drag on. In just three months, HMRC has repaid a whopping £48.7m to people who paid too much tax for simply accessing their pension. With an average refund of around £3,800, these refunds amount to a significant chunk of change.

“The problem hits people who are taking a lump sum from their pension for the first time. They get taxed on what is known as a ‘month 1’ basis, which means it’s treated as though the same amount will come out every month. This results in a far bigger tax bill, which can come as an unpleasant surprise or even de-rail people’s retirement plans.”

The retirement expert added: “The money can be reclaimed. HMRC processed close to 13,000 forms between the beginning of April and the end of June, but it’s an admin headache that people can well do without. Ten years on from the advent of Freedom and Choice it’s a process that should have been consigned to history.”

Ms Morrissey also explained how to avoid an unexpected tax bill. She said: “There are things you can do to mitigate it. For instance, you could make your first pension withdrawal a relatively small one.

“However, if you were looking to take a lump sum to fund travel or home renovations, for instance, you will need to plan ahead to make sure the money you take isn’t whittled away by tax which could delay your plans.

“If you do get clobbered with a big tax bill, then you will need to fill out one of three forms so that HMRC can process the refund. Otherwise, you can wait until the end of the tax year.”

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