Data from the Financial Conduct Authority (FCA) shows that UK savers took more than £70 billion from their pension pots in 2024–25—a 36% jump compared with £52 billion the previous year.
Of that total, £18.3 billion was taken as tax-free cash, marking a staggering 62% increase from £11.3 billion the year before.
Financial advisers say a mix of rising living costs and fiscal uncertainty has prompted savers to raid their pensions earlier than planned.
‘Fear and Rumor’ Driving Decisions
Speculation about what Chancellor Rachel Reeves may announce in her 26 November budget is fueling concern. Many savers fear changes to pension tax incentives, particularly to the 25% tax-free lump sum currently available from age 55 (rising to 57 in April 2028).
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Eamonn Prendergast, chartered financial advisor at Palantir Financial Planning, warned:
“Pension pots are meant to last decades, not be raided in panic. The government must do more to quash rumors early and provide clarity.”
Rachel Vahey, from investment platform AJ Bell, added that many people are making decisions “not because it’s best for them, but because they fear changes to tax incentives.”
Cost of Living Pressure Adds to Strain
According to Stephen Lowe of Just Group, inflation and higher household bills are forcing some to dip into their pension savings. But he also suggested that fears of Treasury cuts could be driving withdrawals:
“Tax-free cash could look like an easy target for the government.”
Inheritance Tax Changes Fuel Concerns
The surge in withdrawals comes in the wake of what critics called an “inheritance tax raid” last October. From April 2027, unspent money in defined contribution pensions will be counted as part of a person’s estate for inheritance tax (IHT) purposes.
Traditionally, pensions were shielded from IHT, making them an attractive way to pass wealth to future generations. This looming change has already led some wealthier retirees to take out large sums—sometimes to fund family holidays or gift money to children.
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The Bottom Line: Don’t Panic, Seek Advice
Financial experts agree that while there may be valid reasons for some to withdraw early, most savers risk undermining their long-term financial security if they act out of fear.
Independent financial advice is strongly recommended before making any major decision about pension withdrawals.
People Also Ask
Q1. Can I withdraw my whole pension at once?
Yes, you can take out your entire pension pot once you reach the minimum pension age (currently 55, rising to 57 in 2028). However, only 25% is tax-free—anything beyond that is subject to income tax, which could push you into a higher tax bracket.
Q2. Is it wise to take my pension early?
Taking your pension early can reduce your future income. While it may make sense for those with urgent financial needs or tax-planning goals, experts warn against making hasty decisions without financial advice.
Q3. Will the government cut the 25% tax-free pension lump sum?
There is no official confirmation, but speculation persists that the government may reduce the maximum tax-free allowance in future budgets. Advisors caution against panic withdrawals based on rumours.
Q4. How much can I take from my pension tax-free?
Currently, you can withdraw up to 25% of your pension pot tax-free, capped at £268,275. This rule is due to change for those accessing pensions from 2028 onwards.