Retirees rushed to take tax-free cash from their pensions last year, withdrawing £22.1billion in lump sums amid fears the Treasury would slash the allowance.
New figures from the Financial Conduct Authority (FCA) show tax-free withdrawals jumped by more than a fifth in the year to March 2026. That follows a 63 per cent surge the previous year, to £18.3billion.
Total pension withdrawals hit a record £91.2billion, up 22 per cent, even though the number of pension pots accessed for the first time rose by only seven per cent.
The period covers the run-up to Rachel Reeves’s second Budget in November 2025, when there was intense speculation that the then-Chancellor would cut the 25 per cent tax-free entitlement, capped at £268,275.
Ahead of last year’s Budget, the FCA saw a record number of pension withdrawals
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In the end, the allowance was left untouched, but pension savings are set to become liable for inheritance tax (IHT) from next April.
Jemma Slingo, pensions and investment specialist at Fidelity International, said: “People worried the Treasury would cut the amount you could access tax free from a pension, prompting hasty decision-making.
“Taking tax-free cash just because you’re scared the rules might change could hurt your retirement in the long-term, especially if you have no plan for how to use it.
“Money held inside a pension can grow free from UK income tax and capital gains tax. Once it is withdrawn, it loses that protection.
How many people accessed their pension plans for the first time in the last year?
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FIDELITY INTERNATIONAL
How big were the pots that were accessed by pension savers in the last year?
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FIDELITY INTERNATIONAL
“Savers who simply leave the proceeds sitting in a bank account also risk having their spending power eroded by inflation.”
The data also shows that 64.5 per cent of people entering drawdown took a tax-free lump sum, up from 61.9 per cent the previous year.
IHT tax is also likely to be driving withdrawals. For deaths on or after April 6, 2027, most unused pension funds and death benefits will count towards a person’s estate for inheritance tax (IHT) purposes for the first time.
The change became law when the Finance Act 2026 received Royal Assent in March. Estates above the £325,000 nil-rate band, plus up to £175,000 for a main residence, face a 40 per cent charge.
Regular withdrawal rates by pot size, according to FCA data
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FIDELITY INTERNATIONAL
Where the saver dies aged 75 or over, beneficiaries may also pay income tax on what they draw from an inherited pension, meaning the combined bill could exceed 60 per cent.
Pensions left to a spouse or civil partner remain exempt. The reforms do not affect the right to take a tax-free lump sum.
The FCA figures show pots worth £250,000 or more made up 8.6 per cent of those accessed last year, up from 4.8 per cent two years ago.
The Fidelity director added: “Some wealthy retirees are keen to gift money from their pensions while they are still alive, in a bid to lower their family’s eventual IHT bill.”
Despite the sums involved, fewer than a third of savers (30.8 per cent) took regulated financial advice before accessing their pension for the first time.
The figures will increase pressure on Chancellor John Healey to rule out changes to pension tax before his first Budget next month.
Ms Slingo added: “Retirement planning is measured in decades, not Budget cycles. Confidence in retirement depends on people being able to plan for the long term, and constant fear of rule changes makes that much harder.”