UK savers withdrew £91bn from their pension pots before last year’s Autumn Budget, as they sought to avoid what was described as Labour’s tax raid, new figures show.
The amount withdrawn increased by £16bn in the 2025/26 tax year compared with the previous year, according to the Financial Conduct Authority (FCA). Over the last two years, total withdrawals rose from £53bn to £91bn — an increase of 70 per cent.
Concerns over pension tax changes
AJ Bell said the increase reflected savers’ concerns about a possible cap on tax-free pension cash and plans to bring pensions within the scope of inheritance tax from April 2027.
The firm warned Healey not to repeat Rachel Reeves’s mistakes by allowing concerns about pension tax policy to spiral. Michael Summersgill, chief executive of AJ Bell, said the figures demonstrated the real-world consequences of allowing speculation about pension tax to continue unchecked.
Summersgill said confirming pension tax stability could resolve the speculation without new Treasury spending and signal that the government supported its promises to savers. He added that the withdrawals were bad for households and the economy because they removed billions from long-term pension investment.
Changes to the inheritance-tax system announced in the 2024 Budget also prompted some savers to withdraw cash from pensions and give wealth to family members during their lifetimes.
Tax-free lump-sum withdrawals rise
Withdrawals of tax-free pension lump sums increased by more than 20 per cent to £22bn in the last financial year, after some savers chose to take the money early.
Steve Webb, a former pensions minister and partner at LCP, said uncertainty about government tax and pension policy appeared to have driven very high levels of withdrawals from pension pots. He said speculation about caps on tax-free cash was unfounded, but had nevertheless led people to access their pensions quickly and potentially lose further investment returns.
FCA data showed that more than one million pension pots were accessed for the first time in the previous tax year, a seven per cent year-on-year increase. The number of pots containing more than £250,000 increased by nine per cent, compared with seven per cent in the previous year.
Calls for clarity before next month’s Budget
Before last year’s Budget, pension providers warned savers against knee-jerk reactions and urged them to wait for Rachel Reeves’s announcements.
Webb urged savers not to repeat their previous actions and called on Healey to provide clarity before next month’s Budget. He said continuing uncertainty about government tax policy was destabilising, distorted people’s financial planning and made a period of stability urgently needed.
Source: City AM
