The figures provided by the Financial Conduct Authority show a striking surge in the number and amount of Pension Commencement Lump Sums (PCSL) accessed in the year from April 2024, spanning the period from just before the General Election that brought the current Government to power up to this April.
The data shows that:
The total amount taken as PCLS by all savers in the six months up to and including March 2025 was £10.43billion.
That was 36.5 per cent up on the £7.65billion in the preceding six months, and a 72 per cent uplift on the £6.07billion in the six months to March 2024.
The total amount withdrawn in the 2024/25 financial year at £18.08 billion dwarfed the £11.25billion extracted in 2023/24 and constituted an increase of 60.7 per cent.
The number of savers withdrawing their PCLS in the six months up to and including March 2025 surged by 33 per cent on the same period a year earlier to 111,869. The number across the 2024/25 tax year went up by 29.1 per cent compared to 2023/24.
Emma Sterland, Chief Financial Planning Officer at Evelyn Partners, comments: ‘These are quite startling figures showing that the country’s pension savers have been in an unprecedented rush to take their tax-free lump sums. That withdrawals soared 72 per cent to more than £10billion in the second half of the last financial year is an extraordinary increase compared to the period just before the last General Election, and it seems certain some of this was prompted by changes, both actual and feared, to Government policy on the taxation of pensions, as well pressures such as the cost of living and higher interest rates.
‘Some of the increase in the six months up to April 2025 will likely be down to families reacting to the inclusion of unspent pension assets in inheritance tax calculations from April 2027, which was announced at the Chancellor’s first Budget on 30 October 2024. But the fact that PCLS withdrawals were already surging rapidly in the summer of 2024, and the sheer volume since then, suggests strongly that there is another factor at play – the fear that the Government would cut tax-free cash in some way at the last Budget, and might still do so at the next. This is backed up by our conversations with clients.
‘While some savers and retirees will doubtless have taken their tax-free cash as part of a well-thought-out plan, you can’t help feeling that much of this increase is a slightly panicked dive into pensions sparked by uncertainty over policy change, particularly among those who aren’t benefitting from expert financial advice. Most savers are entitled to take 25 per cent tax-free cash from their pensions, and while it is possible to extract this gradually over several years, the option to take it as a lump sum when a pension is first accessed – whether before or after retirement – is very popular and more commonplace.
Tax-free cash has been limited to a maximum of £268,275 since the Lifetime Allowance was dismantled by then Chancellor Jeremy Hunt at the 2023 Spring Budget, but since the current Government took power in July 2024 there has been speculation that the worsening fiscal situation could lead the Treasury to target pensions once again. There were reports in 2024 and again this summer that the Treasury could consider reducing the cap on tax-free cash to £100,000 or even lower, which did not materialise.
Ms Sterland continues: ‘That sparked a rush of enquiries from concerned clients last summer and autumn, and our financial planners are experiencing something similar this year. The 25 per cent tax-free cash is a treasured pension benefit and hugely important to savers. Many savers have a specific purpose in mind for their PCLS - such as clearing outstanding mortgages, gifting to children, or a carefully thought-out income strategy - and while they ideally might not take it quite yet, they are also wrestling with the fear that if they don’t it could be curtailed, and they will lose out. These concerns must have been a big driver behind the acceleration of PCLS withdrawals that our FOI has revealed, on top of the incentive to draw down on pension pots that has been created by the inclusion of unspent pension assets in IHT liabilities from April 2027. And as such speculation has not been quashed by the Treasury this year, you can’t really blame savers from worrying that tax-free cash might be on the 2025 Budget table.
‘It is impossible to give guidance to people on what to do as individual circumstance vary so greatly and we are as in the dark as anyone else on the Treasury's plans. But a rule of thumb suggests that if you have a clear purpose for your tax-free cash and were thinking of taking it shortly anyway, then – if you believe there is a chance of it being restricted - there might not be much harm in accelerating that step by a year or two, but we would always recommend taking advice before extracting large sums. For instance, trusts can be a very useful tool to hold sums that aren’t immediately needed or are intended for gifting and that is certainly an area where expert advice is essential.
‘Taking tax-free cash early, without a particular need for it, means that you are taking funds that are growing in a tax-protected environment to one where they could be subject to capital gains, dividend or savings interest taxation. Many people last year who withdrew their PCLS purely due to Budget fears found themselves scrambling to try and reverse the process when nothing happened – with varying degrees of success. While it is not pleasant to think about, if someone withdraws their tax free cash now – when it is still exempt from IHT while it sits in the pension - and then dies before April 2027, they will have taken their funds from an IHT-free environment to a taxable one, as the money will enter their estate for IHT purposes, even if they gift it.’
Looking towards the Budget, Ms Sterland says: ‘A reduction in tax-free cash would feel to many who have yet to take their PCLS, whether they are retired yet or not, like the goalposts are being moved as they’re halfway down the pitch and would be deeply unpopular. So it’s likely – and hoped – that if any such step is on the cards, then transitional arrangements would be put in place to help those closer to retirement and who are already eligible to take their tax free cash, as there were when previous reductions were made to the Lifetime Allowance and people could apply for protection to preserve access to higher allowances.
‘A danger for the Government is that tinkering with tax-free cash could weaken pension saving at a time when they have launched a commission to look at how it can be stimulated, and when state pension provision is coming under the spotlight as being unsustainable in the long term. There’s also evidence that tax-free cash aside, many savers are drawing on or cashing in their pensions quite early on.’
Recent figures from the Department for Work and Pensions revealed that nearly three-quarters of the three million pension savers who have taken flexible payments since the 2015 ‘pension freedom’ rule changes were below the age of 65. Of the £103 billion taken as flexible payments since 2015, £36bn (35%) was paid to those aged below 60 and nearly £29bn (28%) to those aged between 60-64.
Ms Sterland concludes: ‘Some of this may be quite intentional, as it’s currently possible to access your private pension savings from the age of 55 and that is a point when some better-off savers start thinking about retirement. But It’s obvious that funds taken from a pension before retirement will leave less to fund retirement itself, and we would encourage all savers who have amassed significant pots to seek professional financial advice before starting to access their pensions. Financial planners can run cash-flow modelling based on different scenarios to illustrate how today’s decisions will unfold down the line, and that provides much greater confidence to know when and how it is best to start using your pension savings.’
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