More than 300,000 people aged 55-64 completely emptied their pension pots at the first time of access in a move which could potentially land them with an unwelcome tax bill, according to new analysis.
New figures show that 319, 265 people aged 55– many of whom will be in their peak earning years – drained their pension pots entirely at first time of access in the 12 months ended March 2026, according to analysis of the latest Financial Conduct Authority (FCA) data by NFU Mutual, the financial advice firm.
Whilst 25% of a pension pot is usually tax-free, the remaining 75 % is added to other taxable income that year which can push someone still working into the higher 40 % or 45 % tax brackets.
It could even push some into a tax trap where if their income and taxable pension amount combined exceed £100,000, they start to lose their personal allowance - meaning any amount between £100,000 and £125,140 is effectively taxed at 60%.
Most people aged between 55 and 64 will still be working. New data from the Department of Work & Pensions (DWP) showed the employment rate for those aged 50 to 64 was 72.2% in 2026 and the average age of exit from the labour force was 65.1 years for a woman and 65.8 years for a man in 2026.
Sean McCann, chartered financial planner at NFU Mutual, said that many people do not realise that emptying pension pots in one go can trigger a significant tax bill.
He explained ‘’Someone earning £50,000 who cashed in a £100,000 pension pot – including taking a £25,000 tax-free lump sum - would see their taxable income rise to £125,000 for that year (£50,000 plus £75,000) and this means their income tax bill would jump from £7,486 to £42,432."
“Many people who want to take their money out over and above their tax-free cash may be better off phasing their withdrawals across tax years to reduce the tax liability’’, he said.
Almost half of all the 1,047 008 pension pots accessed for the first time in the 12 months ended March 2026 were fully withdrawn, according to data from the Financial Conduct Authority (FCA), the financial regulator.
Some 337, 823 – or 70% of the 479, 485 pension pots - were fully encashed without the owner taking regulated advice or guidance from Pension Wise leaving them at risk of paying more tax than they need to.
Many do not realise that taking a taxable sum from their pension triggers a cap – known as the Money Purchase Annual Allowance (MPAA) - which limits the combined amount they and their employer can pay into their pension to £10,000 each tax year.
Sean McCann said: “Tapping into a pension after you reach 55 can be enticing but taking a taxable payment limits how much you and your employer can subsequently pay into your pension. Considering many workers over 55 will be at the peak of their earnings they risk missing out on contributions from their employer as well as valuable tax relief.. Many people cashing in their pensions do so without a clear idea of what they plan to do with the money, often putting it into a bank account. Whilst money is in a pension any growth is free from UK income tax, capital gains tax and until April 2027 free of inheritance tax. Money taken out of a pension is often exposed to some or all of these taxes.’
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