Older individuals who save for their retirement are being cautioned against making impulsive decisions regarding their pension funds, driven by fear and speculation. This advice comes at a time when there is an observed increase in the amounts being withdrawn from retirement accounts. According to statistics from the Financial Conduct Authority, during the 2024-25 period, UK pension savers took out over £70 billion from their retirement funds—a 36% rise compared to the £52 billion withdrawn the previous year. Of this amount, £18.3 billion was extracted as tax-free cash, marking a 62% increase from the £11.3 billion taken out in the previous year.
Financial advisors attribute this trend to “budget jitters and fiscal rumors,” particularly with the upcoming budget announcement by Chancellor Rachel Reeves on November 26. They emphasize that making hasty decisions based on speculation could have detrimental effects on long-term retirement plans.
Eamonn Prendergast, a financial planner at Palantir Financial Planning, commented that retirement savings should be viewed as long-term investments, not funds to be hastily accessed in times of panic. He stressed that the government needs to provide clarity and suppress rumors early on.
Meanwhile, Rachel Vahey of the investment platform AJ Bell expressed concern that people are not making pension decisions based on their best interests but rather due to worries about possible changes to pension tax incentives. Present rules allow individuals, typically starting at age 55 (rising to 57 from April 2028), to withdraw up to 25% of their pension as a tax-free lump sum, up to a limit. There is speculation that the government may alter or reduce this limit.
Stephen Lowe from Just Group, a retirement specialist, pointed out that the rising cost of living might be compelling people to use their pension money to cover living expenses. However, he also suggested that concerns about the Treasury viewing tax-free cash as “an easy target” could be influencing these withdrawals.
The data on increased withdrawals follows the announcement of what some have termed an “inheritance tax raid” on unspent pension money, which will take effect from April 2027. Currently, pensions are not typically considered part of an individual’s estate for inheritance tax purposes, but they will be included in inheritance tax calculations starting from that date.
The situation has led to wealthy older individuals allegedly withdrawing substantial sums from their pensions for purposes such as funding family vacations or gifting to their children, aiming to avoid the forthcoming inheritance tax changes.
The decision to withdraw cash from a pension fund is highly complex and can have varying implications depending on individual circumstances. While the current strategy might help some affluent older individuals avoid an inheritance tax bill later, it remains crucial for people to ensure they have adequate financial resources to support themselves throughout their retirement, hence the importance of seeking individualized financial advice.
Source: https://www.theguardian.com/money/2025/sep/20/uk-pension-savers-withdraw-cash-budget-tax
