Pension withdrawals surged 36% in 2024/25 amid tax uncertainty (and less than a third of savers take advice)

The Financial Conduct Authority today released its latest annual retirement income market data report, for the financial year 2024/25.

It revealed that the overall value of money being withdrawn from pension pots increased to £70.88billion in 2024/25 from £52.15billion in 2023/24. This is an increase of 35.9 per cent. Further, just 30.6 per cent of pension plans accessed for the first time in 2024/25 were held by savers who took regulated advice - down from 30.9 per cent in 2023/24.

Andrew King, retirement specialist at wealth management firm Evelyn Partners, comments:

‘You would expect there to be some year-on-year increase in the amounts taken from defined contribution pension pots as the population ages and more people each year are reaching retirement, or at least the point where they want to access their pension. Also the proportion of retirees with DC pensions is rising year-on-year.

‘However, the 36 per cent increase from 2023/24 to 2024/25 is substantially greater than increases seen in previous years. For instance, the amount taken in 2023/24 was 20.6 per cent higher than in 2022/23. This surge in pension withdrawals looks like it has been driven by some factors outside of the demographic and structural. 

‘First, concerns among savers over the Labour government’s intentions around the taxation of pensions after it came to power in July 2024. 

‘Second, the measure announced at the October 2024 Budget to bring unspent pension assets into the scope of inheritance tax from April 2027.

‘And third, ongoing concerns that further changes to pension taxation might be in store at the next Budget on 26 November.

‘As it seems the Treasury is unable or unwilling to put such rumours to bed, you can only assume the increase in pension withdrawals is going on as we speak, and certainly at Evelyn Partners we’re having conversations with clients about the wisdom or otherwise of drawing down more heavily from their pensions or taking their 25 per cent tax-free cash. 

‘The recent data we obtained that revealed the huge amounts being accessed by taking pension commencement lump sums in 2024/25 was essentially a sneak preview of this annual report from the FCA, and the finished numbers on PCLS access here tally with the findings that we released on 5 September.

‘But what we also have now is confirmation that pension withdrawals overall – including tax-free cash and all other methods of access, whether encashment in full or partial withdrawals – took an outsized leap in 2024/25, as savers absorb the IHT consequences of holding onto pension assets and cope with policy uncertainty that threatens further the tax efficiency of pensions.

‘We would encourage all pension savers to think twice before making major withdrawals from their pots, especially in anticipation of rumoured policy changes that might not materialise. Another notable data point in this report is that less than a third of savers took regulated financial advice in 2024/25 before accessing their pension for the first time, with a slight decrease on the previous year.

‘Unplanned or ill-conceived pension withdrawals can be subject to big tax charges, can remove funds from an advantageous tax environment, and could reduce your future standard of living in retirement, especially if they involve selling investments amid a market downturn.

‘So at the very least do a lot of research but ideally seek professional advice, especially if you are dealing with a large pot of savings.’