New annual figures published by the FCA show that the amount of money being withdrawn from pensions has increased sharply over the last two years.
The total value withdrawn from pension pots increased by more than a fifth (21.7%) to £91.2bn in the year ending 31st March 2026, up from £75bn in the previous year and £53.6bn in 2023/24 - an increase of 70% in two years.
The proportion of pots accessed with a value of £250,000 or more also increased, reaching 8.6%, compared with 7.2% in the previous year, and 4.8% in the year ending 31st March 2024.
The data also shows that 479,485 pensions were fully withdrawn at the first time of access through the year, although the majority of these were pots smaller than £10,000.
A third of a million pensions withdrawn at rates of 8% or higher
320,762 pension plans were accessed at an annual rate of withdrawal of 8% or over. This accounted for 46% of the total number of pensions where regular withdrawals were made through 2025/26 and marked an increase of 24% year-on-year from 2024/25. The total value of regular pension withdrawals through the year was £11bn.
While smaller pension sizes see the highest proportion of high withdrawal rates, over 15% of pots of £250,000 or larger and more than a third (36%) of pots between £100,000 and £249,000 were still withdrawn at 8% or over through the latest financial year.
Looking at the data by age, half (50%) of those aged 55-64 are making regular withdrawals at an annual rate of 8% or higher.
Why are withdrawals increasing?
Over the last two years, additional withdrawals have been prompted by fears of a cap on tax free cash in the run-up to the 2024 and 2025 Autumn Budgets, and the introduction of IHT on pensions, announced in the 2024 Budget and due to be implemented in April 2027.
Withdrawals jumped in 2024/25 in the run-up to the first Budget of the new government, and stayed high in the run-up to the second Budget. But the announcement of IHT led to growing numbers of people moving money out of pensions during 2025/26 to reduce their potential exposure to IHT.
Evidence for this comes by looking at decisions taken by those with the largest pots – those over £250,000.
According to the figures, people accessing these largest pots and going into drawdown more than doubled between 2023/24 and 2025/26, from 34,712 to 75,968. It is those with the largest pots who are likely to have had the biggest concerns about a potential cap on tax-free cash, and the same group who are most likely to be concerned about the risk of IHT on their estate.
Jemma Slingo, pensions and investment specialist at Fidelity International commented: “Retirees rushed to take tax-free cash from their pensions last financial year. Tax-free lump sum withdrawals jumped by over a fifth to £22.1bn in April 2025 to March 2026. This follows a 63% surge the previous year to £18.3bn.
“Meanwhile, a greater proportion of people entering pension drawdown are taking tax-free cash upfront than in the past. Uncertainty is partly to blame. There was intense speculation about changes to retirement rules in the run-up to the 2025 Autumn Budget. People worried the Treasury would cut the amount you could access tax free from a pension, prompting hasty decision-making.
“Retirement planning is measured in decades, not Budget cycles - taking tax-free cash shouldn't be a knee-jerk response to unconfirmed rumours. Yet we have seen two years of heightened uncertainty around pension policy, and this is understandably influencing behaviour. Confidence in retirement depends on people being able to plan for the long term, and constant fear of rule changes makes that much harder.
“Budget speculation is only part of the story, though. From April 2027, most unused pension funds will be brought within the scope of inheritance tax, in the same way as other savings pots. As a result, some wealthy retirees are keen to gift money from their pensions while they are still alive, in a bid to lower their family's eventual IHT bill. This could also be contributing to higher tax-free and taxable withdrawals.
“Regardless of motives, it is clear that large amounts of money are leaving pensions. Total pension withdrawals rose by 22% to £91.2bn in the period, but the number of pension plans accessed for the first time only increased by 7%.”
Steve Webb, partner at pension consultants LCP, said: “It is very worrying that uncertainties about government policy on tax and pensions seems to have driven very high levels of withdrawals from pension pots. The speculation around caps on tax free cash was unfounded, but this did not prevent people from rushing to access their pensions, potentially losing out on further investment returns as a result. And the imposition of IHT is a very real change which is already affecting people’s retirement planning. We desperately need a period of stability in government tax policy, as continuing uncertainty is destabilising and distorts people’s financial planning.”
David Brooks, head of policy at Broadstone, added: “The headline figure of around a third of a million pensions being withdrawn at rates of 8% or higher will inevitably raise questions about long-term sustainability. For some retirees, particularly those relying heavily on defined contribution savings to fund retirement, withdrawal rates at this level may increase the risk of exhausting their pension pot earlier than expected.
“However, this data only tells us how much is being withdrawn, not whether those withdrawals are appropriate. Some retirees will have other sources of income or wealth, while others may be deliberately drawing down pension savings over a shorter period rather than planning for a retirement lasting several decades.
“Pensions are there to support living standards in retirement, not simply to be preserved indefinitely. Indeed, with future inheritance tax changes likely to increase focus on spending pension wealth during retirement, higher withdrawal rates will not always be a sign that savers are making poor decisions.
“What this data does highlight is the growing need for better support at retirement. An 8% withdrawal rate may be entirely appropriate for one saver and wholly unsuitable for another, depending not only on their personal circumstances and objectives, but also on their wider household finances, including a partner’s income, pension arrangements and other sources of wealth.”
“That is why the development of guided retirement solutions could prove so important over the coming years. Pension freedoms gave savers flexibility over how they access their money, but the industry is still grappling with how best to help people turn pension pots into sustainable retirement incomes. The direction of travel is promising, but designing solutions that can deliver good outcomes across a highly diverse retiree population remains a significant challenge.”
