UK pension savers are under real stress to avoid raiding their retirement savings. As fears grow that pension tax incentives may be rolled back, anticipation of early withdrawals only makes the situation worse. Meanwhile, Rachel Vahey, a pensions specialist at investment platform AJ Bell, has sounded warnings over decisions made in response to panic. She knows these decisions can have a profound negative impact on people’s financial futures. The economic squeezing many savers to access their pensions early puts their long term financial security at risk.
Pension withdrawals are up more than 150 percent. At the same time, savers withdrew more than £70 billion from their retirement pots during fiscal year 2024-2025—an all-time high. This figure represents a jump of almost 36% from the £52 billion pulled out last year. Alarmingly, £18.3 billion of this was taken out as tax-free cash. That’s a colossal 62% increase on the £11.3 billion seized in 2023. These numbers, released by the UK’s Financial Conduct Authority, speak to the immediacy of the challenge.
From the age of 55, people are allowed to draw on their pensions. They can take up to 25% as a tax-free lump sum, the maximum allowed for that period being £268,275. Upcoming changes in federal legislation could make things a lot worse and add to the uncertainty. Stephen Lowe from retirement specialist Just Group indicated that escalating living costs are pushing more people to consider accessing their pension funds. He continued that there is concern the Treasury will see tax-free cash as a low hanging fruit for future taxation.
Eamonn Prendergast, a chartered financial adviser with Palantir Financial Planning said protecting pension pots is key. He cautioned that these funds are intended to be used over decades and shouldn’t be tapped in a moment of panic. Last week, he called on the federal government to do more to proactively combat any misinformation that could add fuel to that fire.
“People aren’t making decisions based on what’s best for them but because they are worried about possible changes to pensions tax incentives.” – Rachel Vahey
From April 2027 onward, all remaining money in defined contribution pensions will be included in inheritance tax calculations. This change makes it even more confusing and complicated for savers. This upcoming change might be just the push people need to take their money out sooner rather than later.
The prevailing fear and uncertainty around pensions today is calling for a courageous response. We need government and private financial institutions to be much clearer. As more savers begin to cash out their savings, specialists are sounding the alarm that these withdrawals risk jeopardizing their long-term financial well-being.