I’m caught in a tax free pension lump sum backlog: Will I get my £125,000 before

I have a Sipp with Hargreaves Lansdown and want to take a tax-free lump sum before the Budget.

After following the online process, I put my £500,000 pension into drawdown and applied for the full tax-free lump sum available of £125,000 on 3 November.

After this, I got an email from Hargreaves Lansdown saying it could take 20 working days, due to them being busy – presumably with people like me trying to take lump sums before the Budget.

If the Chancellor makes a change to the lump sum cap in the Budget, will I be okay and protected against it, as I had already started the process on 3 November?

Tanya Jefferies, of This is Money, replies: Speculation has been rife about rules on pension tax-free cash being tightened in the Budget on 26 November.

Latest reports suggest it is not on the table but there could be changes to salary sacrifice, a popular way to boost a pension and save on National Insurance.

People over the age of 55 can take 25 per cent of their pension tax-free up to a £268,275 cap. There has been a rush of withdrawals, according to pension firms and financial advisers.

Pension tax-free cash: A cherished perk to access a chunk of savings at retirement

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.

For others, taking out a large sum could backfire, because tax-free withdrawals are irreversible and they may miss out on future investment growth by shifting funds out of their pension.

Pension experts have sounded the alarm about making big financial decisions based on rumours about the Budget.

Turning now to your case, if your application is not yet processed by November 26 what happens then could depend on what exactly is announced by Rachel Reeves that day – which of course we do not know yet.

That is the gist of what Hargreaves Lansdown says in its response to you below.

In fairness, it can’t anticipate or control future changes in the rules by the Chancellor. It will have to implement them for its customers, like all other providers.

But there are several reasons why you should not worry unduly at this stage.

First, Hargreaves might very well process your tax-free lump sum before the Budget. It tells me that it has adjusted timeframes for such requests from 15 working days to 20 working days, and makes this clear to customers before they apply.

However, it is working to complete as many requests as possible by increasing overtime and pulling in staff from other teams to handle the workload.

Second, just like last year, nothing might change and therefore it shouldn’t matter if you receive your money a couple of days after the Budget.

Third, should the Government decide to tighten the rules then precedent suggests it would put in place some form of transitional protection.

Former Pensions Minister Steve Webb points this out in a recent column responding to a This is Money reader about whether tax-free cash could be slashed right away on Budget day.

For the record, Webb also says abolishing pension tax-free cash – or even just capping how much you can take – would cause such public uproar the Chancellor is unlikely to do it.

It is worth reiterating that a decision to take tax-free cash is irreversible.

Hargreaves’ comment below echoes warnings on this from across the pension industry in the wake of twin statements issued on tax-free cash cancellation rules by the Financial Conduct Authority and HMRC.

The FCA has explained there is no ‘right to cancel’ a tax-free cash withdrawal, though pension providers might voluntarily offer this option to customers if they wish.

And HMRC has confirmed any tax consequences cannot be undone if you do cancel – so the withdrawal will still count towards someone’s tax-free lump sum limit of £268,275, even if it is unwound.

People should also be aware you can fall foul of pension recycling rules and face stiff penalties if you try to put tax-free cash back in your pension later because nothing changes in the Budget.

As explained above, speculation that Reeves will reduce the cap for tax free lump sums from the current £268,275 has prompted a rush of requests from savers for their cash, according to firms dealing with them.

Just for example, in recent days wealth manager Netwealth told us it has seen a 143 per cent jump in tax-free cash withdrawals between the end of June 2024, just before the election, and the end of last month.

Netwealth says it has no backlog for…