Many individuals with substantial pension funds of 250,000 pounds are opting to withdraw their savings instead of retaining the tax-exempt benefits and potential Inheritance Tax (IHT) advantages.
In the 12 months to March 2025, a significant shift was observed in the UK's pension landscape. The total figure for pension withdrawals surpassed £70 billion for the first time, marking a 36% increase compared to the previous year.
This surge in pension withdrawals was not limited to small pots. Thousands of individuals with pension pots over £250,000 accessed their pensions, with over 20,000 pensions having a value of more than £50,000. The number of individuals accessing pensions over £250,000 increased significantly from October 2024 to March 2025, seemingly in response to the Budget announcement that pensions would be included in the inheritance tax net from April 2027.
Annuity sales also saw a rise, increasing by 8% to 88,430 in 2024/25. Concurrently, sales of income drawdown plans rose by 25% to nearly 350,000. The proportion of drawdown pots paying out income rates of more than 8% of their value has increased to 53%.
Full cash withdrawals made up 48% of the pensions accessed during the year, with an average value of £12,300. Despite the increase in cash withdrawals, tax-free cash withdrawals from pensions have more than doubled in the last two years, reaching £18.3 billion in 2024/25.
The rise in pension access in the six months between April and September 2024 coincided with fears that the first Budget of the new Labour government would include measures such as capping or scrapping tax-free pension lump sums. However, the government that introduced the pension policy measures leading to increased pension payouts is not explicitly named in the search results.
The increase in pension access has raised concerns among industry experts. Stephen Lowe, group communications director at retirement specialist Just Group, expressed concern about the decrease in the use of professional help when accessing pensions. Rob Hillock, head of personal financial planning at independent financial services consultancy Broadstone, suggested that additional behavioural changes may be at play in the significant increase in pension access in the year to March 2025.
Steve Webb, partner at pensions consultants LCP, stated that uncertainty about pensions and tax can move the market. The data provided by the Financial Conduct Authority (FCA) and LCP shows that the number of individuals accessing their pension pots over £250,000 increased significantly from October 24 - March 24 to October 24 - March 25.
It is clear that the pension landscape in 2024/25 saw a significant shift, with more individuals accessing their pensions and a rise in the value of pension withdrawals. As the situation evolves, it will be interesting to see how these trends continue to develop.
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