Pension Withdrawals Hit £70.9bn as Savers React to Tax-Raid Fears

Savers withdrew £70.9 billion from pension pots in 2024/25, a 36% increase on the previous year, as concern mounted that upcoming Budget measures could reduce the tax advantages of retirement savings, according to Financial Conduct Authority figures.

The FCA said the overall value of money being taken from pension plans rose to £70.9 billion from £52.2 billion in 2023/24. The regulator also reported that only 30.6% of pension plans accessed for the first time were held by savers who took regulated advice, down slightly from 30.9% the year before.

Industry figures and financial advisers said the spike in withdrawals appeared to be driven in part by speculation over possible policy changes at the autumn Budget. Commentators have pointed to proposals to reduce the size of the tax-free lump sum that can be taken from a pension and to broader reforms of pension tax relief.

Under current rules, savers can withdraw up to a quarter of their pension pot tax free from age 55, up to a maximum of £268,275. The possibility that the tax-free threshold could be cut has gained attention after retirement savings were brought into inheritance tax rules effective from 2027.

Torsten Bell, a former chief at the Resolution Foundation who was appointed pensions minister earlier this year, has argued for reducing the tax-free lump-sum threshold to around £40,000 and for rebalancing pension tax relief towards low- and middle-earners. Bell has also signalled support for wider changes to the structure of pension tax relief, which cost the Treasury about £48.7 billion in 2023.

Those proposals have fuelled concern among savers that access to tax-free retirement cash could be limited in future. Andrew King, a retirement specialist at wealth manager Evelyn Partners, advised caution.

"We would encourage all pension savers to think twice before making major withdrawals from their pots, especially in anticipation of rumoured policy changes that might not materialise," King said.

Financial advisers and consumer groups said the fall in the proportion of first-time accesses made with regulated advice was notable because withdrawing significant sums can have long-term consequences for retirement income and tax status. Industry bodies have long warned that lump-sum withdrawals can reduce future pension growth and, depending on individual circumstances, lead to higher tax bills and loss of means-tested benefits.

The jump in withdrawals follows a period of policy shifts affecting pensions. The change to inheritance tax treatment, introduced for pensions from 2027, altered how some estates and advisers approach retirement savings. Market commentators say that policy uncertainty, coupled with media coverage of potential Budget measures before the November fiscal statement, can prompt pre-emptive behaviour by households looking to secure access to tax-free cash.

Regulators and advisers have emphasised the value of seeking regulated financial advice before accessing pension funds, particularly for sums taken for the first time. The FCA data suggest that a large share of first-time accesses were made without such advice.

Pension campaigners and some economists back targeted changes to pension tax relief on distributional grounds, arguing high earners receive a disproportionate share of the benefit. Critics warn that abrupt reforms risk disrupting retirement planning if not phased in and communicated clearly.

As ministers and Treasury officials prepare for Budget decisions, the FCA figures underline the immediate behavioural impact that fiscal uncertainty can have on household retirement choices. Advisers said clearer guidance and continued access to regulated advice would help savers weigh the short-term appeal of lump-sum withdrawals against their long-term retirement needs.