Pension tax-free cash SAVED in the Budget – but only after damaging rush of withdrawals from retirement pots

Pension savers will be heaving sighs of relief that Chancellor Rachel Reeves didn’t clamp down on tax-free cash in the Budget.

News the lump sum will remain fixed comes after months of rumours that the limit could be at risk, which were only quashed earlier this month.

But many people were panicked into pulling tax-free cash out of their pensions for fear this popular perk would be curbed.

People over the age of 55 can withdraw 25 per cent of their pension tax-free up to a £268,275 cap, and there was a rush to access this money in case the limit was cut, according to pension firms and financial advisers.

For some people taking the cash could pay off, especially if they planned to do so anyway in the next year or so and want to spend the money for a specific purpose – typically paying off debt like mortgages, carrying out home renovations and booking dream holidays.

Also, some savers are currently pulling out cash to give away to family members following last year’s announcement that unspent pensions would be liable for inheritance tax from April 2027.

Months of rumours: Many people were panicked into pulling tax-free cash out of their pensions for fear this popular perk would be curbed

If you gift money away and survive seven years it typically falls outside of the inheritance tax net – although money experts warn you should not do this if it harms your own retirement.

Others who had no specific financial goal in mind will be looking at the new stack of cash in their bank or savings account and wondering what to do now.

If this is you, money experts warn you can miss out on investment growth under the tax protection of a pension in future.

Therefore, if you want to stay invested, look to use up your £20,000 annual Isa allowance as far as possible.

But be aware that if you try to put the money back in the same pension or another one, you could fall foul of recycling rules.

HMRC could slap on a charge of up to 55 per cent of your lump sum if it decides you exploited this little-known trick to generate extra tax relief. All the following criteria must be met.

– Tax-free cash is taken.

– Tax-free cash taken exceeds £7,500 in past 12 months.

– Contributions into pensions are significantly higher than normal pattern of what’s expected in recent years

– The value of the contribution increase is more than 30 per cent of the tax-free cash taken.

– Recycling was planned.