Pension savers are tapping pots for record sums, reveals HMRC

Pension savers are pulling record sums from their pots with £22.4billion withdrawn during the last tax year, new HMRC figures reveal.The amount taken in the first quarter of this year soared 18 per cent to £5.9billion, with the average withdrawal £7,700. The number of people taking cash in this period jumped 15 per cent to 770,000.But these figures only cover taxable withdrawals, not 25 per cent tax-free lump sums, as it is optional for pension schemes to report people accessing this cash to HMRC.There was nevertheless plenty of evidence last summer and autumn of a rush of people taking tax-free cash, due to speculation about a raid in the Autumn Budget which failed to materialise.Pension experts say the increase in taxable cash withdrawals could be down to the rising number of people reaching retirement with defined contribution pots, but also cost-of-living pressures.Among wealthier people, another reason could be drawdowns from pensions to spend or gift to family before retirement funds become liable for inheritance tax from spring 2027. Early pension withdrawals: You can miss out on valuable tax-efficient investment growth - especially if you just stick the money in a current or savings accountMany people saved into pensions that they intended to pass tax free to the next generation, before the pending rule change scuppered these plans, and are now casting around for other ways to avoid the 40 per cent levy.Meanwhile, the scramble to take tax-free cash before both the last two Budgets defied warnings from money experts, who caution that the decision is irreversible.They say it could harm your retirement finances if you do not have definite spending plans or are not planning to do something sensible like clear debt.You can miss out on valuable investment growth under the tax protection of a pension in future – especially if you just stick the money in a current or savings account.Cost of pensions to Government on the rise The new HMRC figures published today also revealed that the net cost to the Government of topping up people's pensions is on the rise.Tax relief and National Insurance top-ups to pensions reached £53.8billion in 2024-2025, up from £53.4billion the year before.The total bill when payments to employers are included soared nearly £5billion to £83.9billion.There is currently no upper limit on the contributions you can make while saving on NI via salary sacrifice, which allows workers to forego wages in return for the money being paid directly into their retirement fund.But from April 2029 onwards, workers will only be able to pay up to £2,000 via these schemes with the tax perk.Meanwhile, Chancellors have shied away from slashing generous pension relief top-ups in the past, because although it could raise billions of pounds the practical obstacles would be daunting and the move would provoke a storm of protests.Separate figures published by the Department of Work and Pensions (DWP) today showed that around eight in ten employees were saving into pensions in 2025.The Government says the auto enrolment opt-out rate is stable, except when it comes to new savers joining pension schemes where it has hit around 11-12 per cent.Total annual workplace pension savings were £166.1billion in 2025, which the DWP says is a £63.5billion increase compared with 2012, if calculated in 2025 earnings terms.Meanwhile, some £15.9billion was saved into private pensions in 2024-2025, up from £14.6billion the year before.Money pressures could be prompting higher pension withdrawals'The continued growth in taxable pension withdrawals is to be expected given the growing number of people reaching retirement with defined contribution pension pots,' says David Brooks, head of policy at pensions consultancy Broadstone.'However, the 18 per cent annual increase in the value withdrawn during the first quarter of 2026 compared to the previous year is striking and suggests that financial pressures may be encouraging savers to access more of their pensions.'The true concern is that we have little conclusive evidence to gauge how savers are accessing their pensions and whether they are doing so in a sustainable way.'Pension freedoms provide valuable flexibility but inevitably increase the risk that savings are depleted too quickly, particularly where people underestimate how long their retirement may last.'Maurice Titley, commercial director at pension services firm Lumera, says: 'While some people will be accessing their pots as part of a carefully planned retirement strategy, others may not fully consider the longer-term impact on their retirement income.'There is also a potential tax trap - taking a large sum in one go can push someone into a higher tax band, leaving them with an unexpectedly large tax bill.' Retirees face higher income tax bills in retirementSteve Webb, a partner at pensions consultant LCP, says: 'The constant freezing of tax thresholds and allowances has dragged millions more people into paying higher rates of income tax.'The flip side of this is that when they pay into a pension they get more tax relief, leading the cost of tax relief to soar.'But frozen personal allowances mean that the number of pensioners paying income tax has also risen steeply, and the tax bill on pensioners is up dramatically.'Webb, who is This is Money's pensions columnist, downplayed the chances of a Government raid on pension tax relief.'Although the Government may be tempted to slash tax relief to reduce this rising cost, the politics become very difficult half way through a Parliament,' he said. 'Any change would be complex and technical and could take years to implement. 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