Pension holders hurry to cash out large sums due to tax-related worries
In recent months, there has been a significant increase in the number of pension lump sum withdrawals in the UK. This surge, according to Emma Sterland, the chief financial planning officer at Evelyn Partners, has been quite startling.
Sterland suggests that much of this increase can be attributed to a somewhat panicked response to uncertainty over policy changes. In October 2024, the UK government proposed reducing the tax-free allowance on pensions, and in the following October Budget, it announced that pensions would be subjected to inheritance tax by April 2027.
Evelyn Partners submitted a freedom of information request to the Financial Conduct Authority (FCA) for the data on pension lump sum withdrawals, and the data provided by the FCA confirms the surge. The total number of savers withdrawing their tax-free lump sum surged by 33% during the six months leading to and including March 2025, to 111,869. The amount withdrawn from UK pensions in tax-free lump sums rose more than 60% in the 2024/25 financial year to £18.1bn.
The government estimates that its decision to bring pensions within inherited estates will raise a total of £1.5bn with the Treasury by 2030. With an estimated black hole of more than £20bn in public finances, the Treasury is scrambling to find more revenue ahead of the Autumn Budget on 26 November.
Sterland's comments on the surge in pension lump sum withdrawals were made in response to the data provided by the FCA. She believes that a reduction in tax-free cash would be deeply unpopular and could weaken pension saving. If the government reduces the tax-free cash, it could be seen as moving the goalposts halfway down the pitch for those who have yet to take their PCLS.
In an effort to stimulate pension saving, the government has launched a commission to look at how this can be achieved. However, the potential changes to pension policies have caused a stir among savers, leading to a surge in pension lump sum withdrawals.
Sterland suggests that tinkering with tax-free cash could have far-reaching implications. She warns that changes to pension policies could discourage people from saving for their retirement, potentially leading to a retirement crisis in the future. As the government continues to explore ways to address the public finance crisis, it will be interesting to see how pension policies evolve in the coming years.
Read also:
- Understanding Hemorrhagic Gastroenteritis: Key Facts
- Stopping Osteoporosis Treatment: Timeline Considerations
- Trump's Policies: Tariffs, AI, Surveillance, and Possible Martial Law
- Expanded Community Health Involvement by CK Birla Hospitals, Jaipur, Maintained Through Consistent Outreach Programs Across Rajasthan
