Pension tax-free cash: savers pull £250m a day ahead of the Budget

Savers who take pension tax-free cash out of fear of Wednesday’s Budget risk a costly decision they cannot reverse, advisers have told Newspage. Roughly £250 million a day was withdrawn in the year to March 2026, up nearly 22% on the previous year.

The Financial Conduct Authority says the £91.2 billion withdrawn in 2025/26 was up from £75 billion the previous year.

Separately, HMRC figures show 770,000 people took £5.9 billion in taxable flexible pension payments between January and March 2026.

Savers can usually take up to 25% of their pension tax-free as a lump sum, often called tax-free cash, subject to a standard £268,275 allowance, although some have protected allowances. 

There has been speculation that the Chancellor could change the rules, but no change has been confirmed.

A first taxable pension withdrawal can be subject to emergency tax, potentially resulting in an overpayment. 

HMRC repaid £50.4m through pension flexibility tax repayment claims between April and June 2026. The tax-free portion itself is not subject to emergency income tax.

Should you take your pension tax-free cash before the Budget?

Advisers say the decision should be based on what you need the money for, rather than speculation about Wednesday’s Budget.

Graham Nicoll, Financial Planner, Chartered FCSI at NCL Wealth Partners, says he is not seeing significant demand for tax-free cash ahead of the announcement.

He commented: "Don't let the Chancellor's Budget become the architect of your retirement. Fear is a terrible financial planner. We're not seeing significant demand for tax-free cash ahead of the Budget. Our lifestyle financial planning focuses on long-term goals, not knee-jerk reactions to headlines. 

"The question isn't whether to take your tax-free cash, but what will you do with it? Fund retirement income, enjoy life, help children onto the property ladder or support inheritance tax planning? All are valid considerations.

"But withdrawing through fear isn't financial planning, it's speculation. And if you've already withdrawn tax-free cash in anticipation of previous Budgets, you can't simply reverse that decision or put the money back into your pension."

What does taking your 25% early actually cost?

Taking cash early can mean missing out on investment growth if the money would otherwise have remained invested in the pension.

Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, offers an illustration based on a £200,000 pension.

He commented: "On a £200,000 pension, taking £50,000 tax-free now could mean sacrificing around £31,000 in potential growth over ten years, assuming 5% annual returns and no growth on the withdrawn cash.

“There is no guarantee the Chancellor would protect existing pots or introduce a transition period if the rules changed. Equally, there is no certainty of an overnight raid.

"The Government’s repeated failure to provide clarity is encouraging people to gamble with their retirement savings. 

"Pension decisions should be driven by financial planning, not Budget speculation. Once money leaves the pension wrapper, putting the genie back in the bottle isn’t always possible."

Will the Budget cut or cap pension tax-free cash?

No change has been confirmed, and advisers say savers should be wary of making permanent decisions based on rumours.

Philip Dragoumis, Director and Owner at London-based Thera Wealth Management, says any decision should be considered in light of the rules once they are known.

He added: “Don’t make irreversible financial decisions based on rumours. If the rules actually change, your financial planner will help you deal with it in the best way possible.”

Why are so many savers emptying pensions without advice?

The figures show that many pension pots are accessed without regulated advice, but they do not establish why each saver acted. 

FCA data shows 45.8% of pots accessed for the first time in 2025/26 were fully emptied, while 30.8% of plans accessed for the first time were held by people who took regulated advice.

Rikesh Bhatt, Founder and Financial Planner at Telford-based 8 Financial Planning, believes the figures highlight the importance of planning before withdrawing.

He commented: "Taking your tax-free cash because of a Budget rumour is usually the most expensive way to protect it. When anyone asks me, my first question is simple: what's your plan for the money?

"If it's going to sit in a bank account, you've taken it out of a tax-efficient wrapper for no reason, and if you go further than the tax-free part you can be hit with emergency tax and wait months for a refund. You can't put it back either. 

"The bigger story isn't Wednesday. Half of pots being emptied, mostly without advice, tells you people are making one-way decisions out of fear.

"For wealthier families there's a better question to ask: from April 2027 most unused pensions will count for inheritance tax, so the order you draw from each pot matters more than ever. If you've already withdrawn in a panic, don't panic twice. Get advice on where the money sits now.”

What if you have already withdrawn and regret it?

Advisers say savers should consider what happens to the money next, as returning withdrawn cash to a pension can be restricted and may not reverse the original decision.

Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, says people should avoid making another rushed move.

She commented: "Seven in ten accessing pensions without regulated advice should concern everyone. I wouldn't speculate about retrospective changes or transitional protections before any policy is announced. 

"My job isn't to help clients panic more efficiently. It's to stop political uncertainty becoming a permanent financial mistake. If you've already withdrawn, get advice before moving the money again."