Experts are advising older savers to refrain from making impulsive withdrawals from their pension funds amid rising concerns associated with potential changes in tax legislation. This advice follows new data from the Financial Conduct Authority, which indicates that UK pension savers withdrew over £70 billion from their retirement savings in the 2024-25 fiscal year—a nearly 36% increase from the £52 billion withdrawn the previous year. Of this total, approximately £18.3 billion was accessed as tax-free cash, a significant increase of 62% compared to £11.3 billion the prior year.
Financial analysts suggest that anxiety over economic conditions and speculation regarding announcements from Chancellor Rachel Reeves, set for 26 November, are influencing this trend. They caution that kneejerk decisions could jeopardize individuals’ long-term financial stability. Eamonn Prendergast, a chartered financial adviser, emphasized the importance of longevity in pension planning, asserting that these funds are intended to last for many years rather than being withdrawn hastily. Additionally, Rachel Vahey from AJ Bell noted that individuals may not be making the best choices for their circumstances, as fears regarding possible alterations to tax incentives loom.
At present, individuals aged 55 (or 57 starting April 2028) can usually withdraw up to 25% of their pension as a tax-free lump sum, capped at £268,275. However, speculation surrounds the possibility of changes to these limits. Stephen Lowe of Just Group pointed out that rising living costs might compel some to withdraw from their pension savings, although concerns about potential government modifications to tax-free withdrawals may also play a role.
These discussions tie into a recent shift in the treatment of pension money for inheritance tax purposes, effective from April 2027. Plans to alter its status could lead to increased withdrawals to mitigate future tax liabilities. As the options for accessing pension funds present complex implications, individuals are advised to seek tailored financial advice to ensure their long-term financial well-being.
Source: https://www.theguardian.com/money/2025/sep/20/uk-pension-savers-withdraw-cash-budget-tax