Hundreds of pension savers have been stung with six-figure tax bills after withdrawing large sums from their retirement pots in the months leading up to Labour’s anticipated election triumph.
According to new analysis by Standard Life, nearly 300 individuals were hit with tax bills of at least £98,700 after drawing down pension pots worth more than £250,000 above the tax-free limit between October 2023 and March 2024.
An additional 1,593 people accessed pensions ranging between £100,000 and £249,000, facing tax charges starting from £27,400.
The surge in withdrawals coincided with rising concerns over future tax changes.
Chancellor Rachel Reeves has since confirmed that inheritance tax will apply to private pensions from April 2027, and has floated proposals to slash the tax-free pension allowance to as low as £100,000 in her upcoming October Budget.
Under current rules, savers can withdraw up to 25% of their pension tax-free, capped at £268,275. However, any additional amount is taxed as income—often bumping retirees into a higher tax band if taken in one go.
Mike Ambery, Retirement Savings Director at Standard Life, warned:
“A significant number of people are incurring large and avoidable tax bills when accessing their pension pots. While personal circumstances vary, most would be wise to consider the long-term implications before making such withdrawals.”
Former Pensions Minister Sir Steve Webb, now a partner at consultancy LCP, noted that around half of those drawing down full pots exceeding £250,000 were under 65.
He suggested some were likely using the funds to purchase property, pay off mortgages, or financially support their children.
“There may also be a lack of trust in the pensions system, or a belief that funds are safer in a bank,” Sir Steve added. “Market volatility may have also driven some to cash out prematurely.”
Tom Selby, of investment platform AJ Bell, echoed that sentiment: “Thanks to pension freedoms, individuals have the right to access their savings. But those who do must be absolutely clear on the tax liabilities and consider how they will sustain themselves financially in later life.”
The Treasury responded by defending the system, highlighting the UK’s commitment to supporting pension saving through generous tax reliefs:
“The Government supports savers and pensioners, offering around £70 billion annually in pension tax relief to help ensure a steady income during retirement. For most, contributions made during working life remain entirely tax-free.”
