Pension withdrawals rise by 36% but experts warn "pots are meant to last decades, not be raided in panic"

FINANCIAL experts have said Budget jitters and fiscal rumours are the reason for new data from the City watchdog, the Financial Conduct Authority, showing a huge increase in the amount of money being withdrawn from pensions over the past year — and warned that people should not make "big decisions about their finances based on speculation alone".

Pension withdrawals rose by 36% to £70.9 billion in 2024/25, up from £52.2 billion the previous year, according to the financial regulator. Meanwhile, the total number of pensions accessed for the first time jumped 8.6% to 961,575, up from 885,455.

The figures began rising in the months before the Autumn Budget and then jumped in the months following the Budget, suggesting people began accessing their pots in response to speculation around cuts to tax-free lump sums and changes to bring pensions into the scope of inheritance tax.

Laura Purkess, personal finance expert at Investing Insiders, said: “There has long been concern that uncertainty around government policy is leading people to make rash decisions with their money, and the latest FCA figures appear to solidify those concerns.

"It’s no coincidence that the numbers began rising ahead of the last Budget amid rife speculation that the government was looking to scrap or cap pension tax-free lump sums, which is deeply concerning.

"People clearly shouldn’t be making big decisions about their finances based on speculation alone, as often those rumours don’t come to fruition, as was the case with fears about tax-free lump sums being cut. The government needs to get a grip on rumours circulating so far ahead of Budgets and address speculation that could damage people’s finances.

"The figures jumped again between October 2024 and March this year, after plans were confirmed to bring pensions into the scope of inheritance tax, suggesting a knee-jerk reaction to the news. This is still concerning as in many cases, this may not have been the best course of action.

"For anyone thinking of making a decision about their finances in response to headlines or policy changes, consider speaking to a professional first. A financial adviser can help you work out what the best move is for you right now, and if there are any changes in the Budget, they will be able to act swiftly to ensure you are still in the best position.

"It’s also important to remember that most big policy changes announced in Budgets do not come into effect immediately. The best thing you can do at any time is to ensure your finances are in the best shape possible and not make rash decisions based on rumours or fears about the future.”

Scott Gallacher, Director at Leicester-based Rowley Turton, said the figures come as no surprise.

He added: “I’ve had several clients express real concern about the government’s current direction on pensions and tax. That said, in most cases people are best served by sitting tight.

"Historically, existing pension holders have generally been protected by transitional rules when changes are introduced, though sadly none of us has a crystal ball to guarantee that will always be the case.”

Samuel Mather-Holgate, Independent Financial Adviser at Swindon-based Mather and Murray Financial, also said it was no surprise withdrawals have shot up: "The uncertainty the Budget causes always reeks havoc on retirement advice as members clamber to release tax-free cash before they fear it is taken away. That said, pension withdrawals have increased for other reasons, too.

"Now that IHT is levied on pension savings, it's the money that you should be spending first. If you live past 75, and die with a pension then your beneficiaries won't just pay IHT but income tax, too.

“If this reduces some of your allowances, like the enhanced nil rate band for property, you could be paying an eye-watering 92% tax rate if you die with money in your pension. No wonder withdrawals have gone through the roof.”

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, said people should not raid their pension pots in panic: "Fear and rumour are a terrible basis for retirement planning, yet speculation has been running unchecked since last year’s Budget.

"Even before the next Budget on 26 November was announced, months of uncertainty spooked savers into pulling £70bn from pensions. These pots are meant to last decades, not be raided in panic.

"Too often it’s those without guidance who make the costliest mistakes, leaving themselves worse off and more stressed. The Government must do more to quash rumours early and give clarity.

“Savers need calm, long-term planning and proper advice, pensions should be built on strategy, not scare tactics.”