Pension savers have scrambled to withdraw cash from their pension pots amid fears of government policy change, new data has revealed.
Figures from the Financial Conduct Authority obtained by Evelyn Partners show savers rushed to withdraw their 25% tax-free cash in “unprecedented” volumes in the 2024/25 financial year, with the amount pulled from pension pots soaring by more than 60% year-on-year.
The number of savers who withdrew their Pension Commencement Lump Sums (PCLS) in the six months up to and including March 2025 surged by 33% on the same period a year earlier to 111,869. The number across the 2024/25 tax year rose by 29.1% compared to 2023/24.
In total, savers withdrew £10.43 billion in PCLS in the six months to March, a rise of 36.5% on the £7.65 billion withdrawn in the preceding six months and a 72% jump on the £6.07 billion taken in the six months to March 2024.
The data showed the total amount withdrawn in the 2024/25 financial year reached £18.08 billion, up 60% on the previous year.
Emma Sterland, chief financial planning officer at Evelyn Partners, said: “These are quite startling figures.
“That withdrawals soared 72 per cent to more than £10 billion in the second half of the last financial year is an extraordinary increase compared to the period just before the last General Election, and it seems certain some of this was prompted by changes, both actual and feared, to government policy on the taxation of pensions, as well pressures such as the cost of living and higher interest rates.”
Sterland said growing fears that the Government could cut tax-free cash in some way at the last Budget and could potentially still do so at the next had influenced their behaviour.
“While some savers and retirees will doubtless have taken their tax-free cash as part of a well-thought-out plan, you can’t help feeling that much of this increase is a slightly panicked dive into pensions sparked by uncertainty over policy change, particularly among those who aren’t benefitting from expert financial advice,” she said.
Tax-free cash has been limited to a maximum of £268,275 since the Lifetime Allowance was dismantled by then-Chancellor Jeremy Hunt at the 2023 Spring Budget, but since Labour came into power in July 2024 there has been speculation that the worsening fiscal situation could lead the Treasury to target pensions once again. These include rumours that the Treasury could reduce the cap on tax-free cash to £100,000 or even lower.
Sterland said: “The 25 per cent tax-free cash is a treasured pension benefit and hugely important to savers. Many savers have a specific purpose in mind for their PCLS – such as clearing outstanding mortgages, gifting to children, or a carefully thought-out income strategy – and while they ideally might not take it quite yet, they are also wrestling with the fear that if they don’t it could be curtailed, and they will lose out.”
As the next Budget approaches, Evelyn Partners said a reduction in tax-free cash would likely be deeply unpopular and if such a step were on the cards, transitional arrangements should be put in place to help those closer to retirement and who are already eligible to take their tax-cash free, similar to the protections put in place when reductions were made to the lifetime allowance.
“A danger for the Government is that tinkering with tax-free cash could weaken pension saving at a time when they have launched a commission to look at how it can be stimulated, and when state pension provision is coming under the spotlight as being unsustainable in the long term. There’s also evidence that tax-free cash aside, many savers are drawing on or cashing in their pensions quite early on,” she added.
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