UK pension advisors caution early tax‑free cash withdrawals and child benefit claim errors

HM Revenue & Customs has warned parents that claiming Child Benefit remains important even for high‑earners because it automatically generates National Insurance credits that count toward the State Pension. Tax experts say many families skip the claim, fearing the High Income Child Benefit Charge, but doing so can leave gaps in their pension record.

Investment platform AJ Bell cautions that withdrawing the 25 % tax‑free lump sum from a pension too early can severely reduce retirement wealth. A simulated saver with a £500,000 pot who takes the full £125,000 lump sum and holds it in cash could be £63,000 poorer by age 65 because of missed investment growth. The FCA reports tax‑free withdrawals have more than doubled since 2018, driven by concerns over possible policy changes. AJ Bell has urged Chancellor John Healey to introduce a “PensionTaxLock” in the upcoming Budget to protect pension tax relief and give savers certainty.