More than 300,000 Britons have cashed in their entire pension pots in one go, putting themselves at risk of unexpectedly large tax bills.
Someone still working could see their annual income tax bill jump to more than £42,000 by withdrawing their retirement savings all at once.
A total of 319,265 people aged 55 to 64 emptied their pension pots the first time they accessed them in the year to March 2026, according to analysis of Financial Conduct Authority (FCA) data by financial advice firm NFU Mutual.
The figures show that nearly half of all pension pots accessed for the first time during this period were withdrawn in full.
However, taking all your pension savings at once can result in a substantial tax bill, particularly if you are still working and receiving a salary.
Under current rules, savers can usually take 25 per cent of their pension pot tax-free.
The remaining 75 per cent is treated as taxable income and added to any other earnings received during the same tax year.
This means someone who withdraws a large amount while still working could find themselves paying 40 or 45 per cent income tax on part of their money.
There is an additional tax trap for people whose combined salary and taxable pension withdrawals exceed £100,000. Once their income passes this threshold, they begin to lose their tax-free personal allowance, creating an effective tax rate of 60 per cent on income between £100,000 and £125,140.
The warning is particularly relevant to people accessing their pensions before retirement, as many over-55s are still earning a salary.
The employment rate among people aged 50 to 64 stood at 72.2 per cent in 2026, according to Department for Work and Pensions figures.
More than 300,000 Britons have cashed in their entire pension pots in one go,
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GETTYSean McCann, chartered financial planner at NFU Mutual, warned that withdrawing an entire pension pot could leave workers paying significantly more tax than they expected.
He explained: “Someone earning £50,000 who cashed in a £100,000 pension pot including taking a £25,000 tax-free lump sum – would see their taxable income rise to £125,000 for that year (£50,000 plus £75,000) and this means their income tax bill would jump from £7,486 to £42,432.”
In this example, withdrawing the entire pension pot would increase the worker’s total annual income tax bill by almost £35,000.
However, the amount of tax someone pays will depend on their salary, the size of their pension withdrawal and their individual circumstances.
Mr McCann suggested that people who want to access more than their tax-free allowance could potentially save thousands of pounds by spreading their withdrawals across several tax years instead of taking everything at once.
The average age at which people leave the workforce was 65.1 years for women and 65.8 years for men in 2026, according to DWP figures
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GETTYOf the 1,047,008 pension pots accessed for the first time in the 12 months to March 2026, close to half were withdrawn in their entirety, according to FCA figures.
Perhaps more concerning is that seven in ten of those who fully cashed in their pots did so without seeking regulated financial advice or using the government’s Pension Wise guidance service. That amounts to 337,823 people out of the 479,485 who emptied their savings completely.
The average age at which people leave the workforce was 65.1 years for women and 65.8 years for men in 2026, according to DWP figures.
This means the vast majority of those cashing in pots between 55 and 64 are likely still years away from retirement and earning a regular income.
What many savers also fail to realise is that taking a taxable sum from their pension triggers the Money Purchase Annual Allowance.
Pension warning as over-55s risk £42,000 tax bill
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GETTYThis cap restricts the total amount that they and their employer can contribute to their pension to just £10,000 per tax year.
“Tapping into a pension after you reach 55 can be enticing but taking a taxable payment limits how much you and your employer can subsequently pay into your pension,” Mr McCann said.
“Considering many workers over 55 will be at the peak of their earnings they risk missing out on contributions from their employer as well as valuable tax relief.”
He added that many people cash in their pensions without a clear plan, often simply depositing the money into a bank account.
Within a pension, any growth is shielded from income tax, capital gains tax and, until April 2027, inheritance tax. Once withdrawn, the money typically becomes exposed to some or all of these charges.