Hundreds of thousands of savers raided £2.2bn from their pensions early last year thanks to rising living costs and political uncertainty.
Thousands aged 55 and over urged to ‘withdraw’ cash after HMRC rule change
UK households are scrambling to “withdraw” their pension pots. Hundreds of thousands of savers raided £2.2bn from their pensions early last year thanks to rising living costs and political uncertainty.
HMRC figures reveal 120,000 people aged 55 to 56 withdrew taxable sums from their pensions in 2023 – 24, an 18 per cent rise over five years.
Once workers reach 55, they can take 25 per cent of their pension tax-free, up to a maximum of £268,275. After that, withdrawals are taxed as earnings. Jason Hollands, of the investment platform Bestinvest, said: “Demographic patterns will be a factor. But other possible influences are a rise in business exits and second property disposals ahead of the election enabling more people to take early retirement.”
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Daniel Hough, of wealth manager RBC Brewin Dolphin, said: “Retirement is lasting longer for people – by accessing their pensions at 55, there will be more pressure on providing a sustainable income throughout retirement, however long it may last.”
Andrew Tricker, of Lubbock Fine Wealth Management, who obtained the data, said: “The large number of savers withdrawing from their pensions before actually retiring is very concerning. Many of them are withdrawing too much – and too early.”
Experts warned savers could be tempted to spend excessively out of their pensions in order to avoid an inheritance tax bill after a rule change from the Labour Party government.
Kate Smith, of pensions firm Aegon, said: “The expectation is that those individuals with large estates will access their pensions earlier to avoid inheritance tax, and later life tax planning will become increasingly important.”
Mr Hough said the proposals had caused “concern and some confusion” among those nearing retirement.
Chancellor Rachel Reeves previously announced the removal of inheritance tax exemptions on pension pots from 2027.
Currently, savers can pass on their retirement funds tax-free, but this change has prompted many to reconsider their withdrawal strategies.