Pension withdrawals jumped 35.9% over the past year amid growing speculation that tax-free cash may be an easy target for a cash-strapped government wanting to boost its tax take.
The overall value of money being withdrawn from pension pots increased to £70.1 billion in 2024/25 from £52.2 billion in 2023/24, according to the Financial Conduct Authority.
Meanwhile, the total number of pension plans being accessed for the first time in 2024/25 rose by 8.6% to 961,575 compared to 2023/24.
The surge in numbers comes amid the Government’s decision to include pensions in the scope of inheritance tax and growing speculation that the Government may make changes to pension tax-free cash in an effort to bolster its finances.
Stephen Lowe, group communications director at Just Group, said: “Tax-free cash is considered a hugely valuable perk by pension savers but there is clearly something driving withdrawal rates higher.
“On the one hand, rising living costs could be forcing more people to dip into their pension money to pay the bills. There may also be an element of concern that tax-free cash may be an easy target for governments wanting to boost the tax take to boost the country’s coffers.”
Rob Hillock, head of personal financial planning at Broadstone, commented: “While demographic changes would suggest that increasing amounts of pension money will be accessed year-on-year, the size of this year’s jump suggests additional behavioural changes may well be at play. Reforms such as the inclusion of pension assets in inheritance tax may be encouraging more savers to spend their pension or front-load withdrawals.
“Unfortunately, it also indicates that many of the rumours around the 2024 and 2025 Autumn Budgets could also be impacting how savers access their pension. For example, tax-free pension lump sum withdrawals were reported to have risen significantly amid fears this allowance could be reduced or scrapped.”
The FCA’s Retirement Income Market data revealed sales of drawdown plans rose by 25% to nearly 350,000 in 2024/25. Annuity sales also rose 8% to 88,430; the highest number since the FCA started publishing the data a decade ago.
Separately, the data showed that the number of defined benefit to defined contribution pension transfers continues to decrease. The number of transfers fell from 18,080 in 2022/23 to just 6,418 in 2024/25.
Brian Nimmo, head of redress at Broadstone, said: “Rising gilt yields will have had a negative impact on transfer values making a transfer less attractive for those with DB pensions. Another factor will have been regulatory change which has led to a large fall in the number of advisers willing to participate in this area.”
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