Multiple pension holders with a substantial £250k retirement savings opt for cash withdrawal instead of tax-free benefits, expressing concerns over potential inheritance tax implications
Record Breaking Pension Withdrawals in 2024/25: A Closer Look
In a significant financial shift, pension withdrawals in the UK surpassed the £70 billion mark for the first time during the year ending March 2025, marking a 36% increase from the previous year. This trend was observed under the Scholz cabinet, which was still in power at the time, as the federal election and subsequent government formation process had not yet been completed.
The data, released by the Financial Conduct Authority (FCA) and actuarial consultancy Lane Clark & Peacock (LCP) on 16 September, reveals that full cash withdrawals made up 48% of the pensions accessed, with an average value of £12,300. Over £53 billion was taken out in cases where pension pots were moved into drawdown but not fully emptied out.
The rise in pension withdrawals saw a notable increase in the number of people moving pots over £250,000 into drawdown, with 33,475 cases in the period from October 2024 to March 2025. Sales of income drawdown plans rose by 25% to nearly 350,000 in 2024/25.
Rob Hillock, head of personal financial planning at independent financial services consultancy Broadstone, suggests that additional behavioral changes may be at play in the increase of pension withdrawals. Rachel Vahey from AJ Bell believes the increase in drawdown figures may be due to people wanting to bank their tax-free cash before any possible tax regime changes.
Stephen Lowe from retirement specialist Just Group suggests that rising living costs and concern about potential tax changes may be driving higher withdrawal rates. Steve Webb, partner at pensions consultants LCP, stated that uncertainty about pensions and tax can move the market.
The number of people accessing their pensions increased in the six months between April and September 2024, coinciding with fears about potential changes to tax-free pension lump sums. The total amount of tax-free cash withdrawn in 2024/25 was £18.3 billion, a 63% increase from the previous year. The number of pension withdrawals increased again from October 2024 to March 2025, seemingly in response to the announcement that pensions would be included in the inheritance tax net from April 2027.
However, the use of professional help such as regulated financial advice or the Pension Wise service is continuing to decline when accessing pensions, which could potentially lead to less informed decisions.
Thousands of individuals with pension pots over £250,000 have withdrawn money in the 12 months to March 2025, while over 20,000 pensions worth more than £50,000 were fully withdrawn, and 712 were pensions worth more than £250,000. Annuity sales also increased by 8% to 88,430 in 2024/25.
This surge in pension withdrawals underscores the need for careful consideration and informed decision-making when it comes to managing retirement savings. As the landscape of pension regulations and taxation continues to evolve, it is crucial for individuals to seek professional advice and stay informed to make the most of their retirement savings.
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