Tax fears drive 70% surge in pension withdrawals

A surge in pension withdrawals is being driven by uncertainty over government tax changes, according to experts.

The amount of cash withdrawn from pension pots accessed for the first time has increased by 70% since 2023-24.

Some £91.2bn was withdrawn in 2025-26, up from £53.6bn in 2023-24.

"Uncertainties about government policy on tax and pensions seem to have driven very high levels of withdrawals from pension pots," says former pensions minister Steve Webb.

Withdrawals jumped in 2024-25 in the run-up to Labour's first budget, and then again following the announcement that unused pension funds and death benefits will be subject to inheritance tax (IHT) from April 2027.

Media speculation about a potential raid on tax-free lump sum withdrawals under former chancellor Rachel Reeves only compounded the problem, Webb says.

"The speculation around caps on tax-free cash was unfounded, but this did not prevent people from rushing to access their pensions, potentially losing out on further investment returns as a result," adds Webb, now a partner at consulting firm LCP.

"And the imposition of IHT is a very real change which is already affecting people's retirement planning.

"We desperately need a period of stability in government tax policy, as continuing uncertainty is destabilising and distorts people's financial planning."

Investment platform AJ Bell has written to Chancellor John Healey calling for a commitment to pension tax stability ahead of the budget on 28 October.

"These figures should end any doubt about the real-world consequences of allowing pension tax speculation to run unchecked," says AJ Bell chief executive Michael Summersgill.

"This trend is bad for households and bad for the economy - pulling billions of pounds out of pensions prematurely reduces the capital available for long-term investment."

A Treasury spokesperson said: "The Chancellor makes tax policy decisions at fiscal events. Speculation can be harmful which is why we do not comment on future changes to tax policy.

"We are committed to encouraging pension saving. Pension savers already benefit from around £78 billion a year in tax reliefs as the majority pay no tax on their contributions."

(c) Sky News 2026: Tax fears drive 70% surge in pension withdrawals