UK pension savers withdrew tax-free lump sums at record levels in the past financial year, as speculation over future Government policy prompted many to access their retirement pots early.
Figures obtained from the Financial Conduct Authority by wealth manager Evelyn Partners show that withdrawals of Pension Commencement Lump Sums (PCLS) surged to £18.08billion in 2024/25, up 61% on the previous year. In the six months to March 2025 alone, savers accessed £10.43billion in tax-free cash – a 72% rise compared with the same period a year earlier. Nearly 112,000 people took lump sums in that half-year, up by a third.
The tax-free entitlement allows most savers to withdraw up to 25% of their pension tax-free when they first access it, either before or after retirement. Since the abolition of the lifetime allowance in 2023, this lump sum has been capped at £268,275.
Evelyn Partners said many withdrawals were prompted by fears of future changes after Chancellor Rachel Reeves’s October 2024 Budget confirmed that unspent pensions will be included in inheritance tax liabilities from 2027.
Reports that ministers had considered lowering the tax-free cap – potentially to £100,000 – also spurred early action.
Emma Sterland, chief financial planning officer at Evelyn Partners, called the surge “quite startling”, and said: “Withdrawals soared to more than £10 billion in just six months – an extraordinary increase compared to the period before the last General Election.
“The sheer volume since then suggests strongly that another factor is at play – the fear that the Government would cut tax-free cash in some way at the last Budget, and might still do so at the next. This is backed up by our conversations with clients.”
While some lump sums were used for planned purposes such as paying off mortgages or gifting to family, Evelyn Partners warned that many were taken in a “slightly panicked” fashion.
Moving funds out of pensions too early can reduce retirement income and increase exposure to capital gains, dividend, or savings tax, and may inadvertently create larger inheritance tax liabilities.
Ms Sterland added: “Taking tax-free cash early, without a particular need for it, means that you are taking funds that are growing in a tax-protected environment to one where they could be subject to taxation.
“Many people last year who withdrew their PCLS purely due to Budget fears found themselves scrambling to try and reverse the process when nothing happened, with varying degrees of success.”
Looking ahead to the 2025 Budget, Ms Sterland warned that any cut to the 25% tax-free allowance would be “deeply unpopular” and risk discouraging long-term saving.
She said: “It’s obvious that funds taken from a pension before retirement will leave less to fund retirement itself, and we would encourage all savers who have amassed significant pots to seek professional financial advice before starting to access their pensions.”
