Should You Withdraw from Your Pension Before the Autumn Budget?

Key considerations for investors as speculation mounts over possible pension changes in the UK

As the Autumn Budget announcement approaches in November 2025, concerns are rising about potential changes to pension rules. Many Britons are now questioning whether they should access their pension pots early — but experts warn this decision could come with long-term financial risks.

Below, we break down the key points to help investors and savers make informed decisions.

Why People Consider Withdrawing Early

Early pension withdrawals can seem appealing in times of financial stress or uncertainty. Common reasons include:

• Paying off high-interest debt
• Supporting children or grandchildren financially
• Bridging the income gap before reaching State Pension age

From the age of 55 (rising to 57 in 2028), those with a defined contribution pension can begin taking money out. However, this can erode long-term value by reducing both growth potential and tax advantages.

How You Can Access Your Pension

There are four main methods for accessing your pension pot, each with its own implications:

• Full Lump Sum Withdrawal
  • 25% is tax free; the rest is taxed as income
  • Large withdrawals may push you into a higher tax band
• Smaller Lump Sums (UFPLS)
  • Ad-hoc withdrawals with 25% tax-free per payment
  • Offers more flexibility, but still incurs income tax on 75%
• Annuity Purchase
  • Converts pension into a guaranteed lifetime income
  • Provides certainty, but lacks flexibility and may not keep pace with inflation
• Drawdown
  • Keeps money invested while allowing flexible withdrawals
  • 25% tax-free initially; the rest is taxed as income
  • You carry the investment risk and pay ongoing fees

The Hidden Risks of Early Withdrawal

Experts like finance advisor Laura Pomfret urge caution. The most significant danger is running out of money later in life — especially as people are living longer. Once your pension is depleted, it’s extremely difficult to rebuild.

Further risks include:

• Tax consequences – Withdrawals beyond the 25% tax-free limit count as income and can increase your tax bill
• Reduced contributions – Triggering the Money Purchase Annual Allowance (MPAA) limits future pension contributions with tax relief to £10,000 annually
• Impact on benefits – Any withdrawal is treated as income and may reduce or remove eligibility for Universal Credit and other means-tested benefits

Expert Advice for Pension Holders

Laura Pomfret told BBC Morning Live that planning is key, especially when it comes to the interaction between pensions and benefits. For instance, savings over £6,000 begin to affect Universal Credit, and those over £16,000 may disqualify you altogether.

“The short answer is yes — pension withdrawals can affect your benefits. Think carefully before accessing your pot,” she advised.

Where to Get Help

Before taking action, consult the following:

• Pension Wise – Free government guidance for anyone over 50 with a defined contribution pension
• MoneyHelper and Citizens Advice – Offer tailored support for people on benefits
• Independent Financial Advisers – For personalised, regulated advice

Outlook for Investors

Speculation around the Autumn Budget has stirred uncertainty in the pension landscape. While some investors might be tempted to "lock in" their current entitlements, early withdrawals may backfire due to tax, benefit implications, and the risk of long-term income shortfalls.

Bottom line: Unless you have urgent financial needs, most experts advise holding off on pension withdrawals until after the budget is confirmed. Staying invested could offer better outcomes — both in terms of growth and flexibility.

Sources: (BBCMoney.co.uk)