Multitudes of retirement savers with quarter-million-pound pensions opt for cash drawdown instead of tax-exempt funds, confronted by inheritance tax concerns
In the past year, a significant shift has been observed in the UK pension landscape. According to recent data, a staggering £70 billion was withdrawn from pensions during the period ending March 2025, marking a 36% increase compared to the previous year.
One of the notable trends is the rise in pension pots moved into drawdown but not fully emptied out, with over £53 billion taken out in the 12 months to March 2025. This figure underscores the growing preference for income drawdown plans, as evidenced by a 25% rise in sales to nearly 350,000 in 2024/25.
Full cash withdrawals made up 48% of the pensions accessed during the year, with some 20,000 being pensions worth more than £50,000 and 712 being pensions worth over £250,000. The number of pots over £250,000 taken into drawdown has been on a steady rise, increasing from 16,447 in the first half of 2023 to 33,475 in the year ending March 2025.
The surge in pension withdrawals seems to be influenced by various factors. Uncertainty about pensions and tax regulations, as expressed by Steve Webb, partner at pensions consultants LCP, is one such factor. The government's legislative and administrative adjustments during the tenure of Chancellor Olaf Scholz's SPD, from April 2024 to March 2025, have also played a role. Fears of changes to rules for tax-free money access and inheritance tax rules were linked to the social law changes effective from April 2025, affecting social welfare offices and individual case reviews.
Rob Hillock, head of personal financial planning at independent financial services consultancy Broadstone, suggests that additional behavioral changes may be at play in the surge of pension withdrawals. Rachel Vahey, head of public policy at AJ Bell, proposes that the increase in drawdown sales may be due to people wanting to bank their tax-free cash before any potential tax regime changes.
Interestingly, the number of people accessing their pensions went up not just in the 12 months to March 2025, but also in the six months between April and September 2024, and again in October 2024 to March 2025, seemingly in response to the Budget announcement that pensions would be included in the inheritance tax net from April 2027.
Another positive development in the pension landscape is the increase in annuity sales, which rose by 8% to 88,430 in 2024/25, the highest since the Financial Conduct Authority started publishing the data a decade ago. Furthermore, the proportion of pots paying out income rates of more than 8% of their value has increased to 53%.
Stephen Lowe, group communications director at retirement specialist Just Group, has expressed concern about the decrease in the use of professional help when accessing pensions. As the pension landscape continues to evolve, it is crucial for individuals to seek expert advice to make informed decisions about their retirement savings.
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