Retirees withdrew over £22 billion from their pensions in tax-free lump sums during the 2025/26 tax year. This figure marks an increase of more than 20% compared to the previous tax year.
According to Financial Conduct Authority (FCA) data, pensioners have taken over £40 billion in tax-free lump sums in the last two tax years alone. Between 2018/19 and 2022/23, the total never exceeded £8.7 billion, rising to just over £10 billion in 2023/24, and then to £18.3 billion in 2024/25.
Experts at AJ Bell suggest that fears of increased taxation on pensions, particularly during Labour's first two Budgets, may have driven this surge in withdrawals. Despite speculation, then-chancellor Rachel Reeves left pension tax-free cash untouched in the 2025 Autumn Budget.
Michael Summersgill, chief executive of AJ Bell, stated that these figures demonstrate the impact of unchecked pension tax speculation. He added that pulling billions of pounds out of pensions prematurely reduces capital available for long-term investment, which is detrimental for households and the economy.
AJ Bell has urged the new chancellor, John Healey, to publicly commit to maintaining pension tax-free cash and tax relief. This commitment, they argue, would prevent a similar rush before this year’s Budget and signal government support for savers.
Under current rules, individuals can typically withdraw up to 25% of their pension pots free from tax, with a maximum of £268,275. This can be taken as a single payment or multiple smaller ones, usually from age 55, though this minimum age is set to rise from April 2028.