There has been a surge in the number of people accessing higher value pension pots in the past tax year, amid changes to pensions IHT rules and speculation about Budget tax raids.
Figures published today from the FCA show that there was a sharp increase in the number of people accessing pension pots worth more than a £250,0000 in the six months between April and September 2024. This coincided with rumours that Rachel Reeves would restrict or scrap the ability for people to take tax-free lump sums from their pension pots in her first Budget. This did not in fact transpire.
The number went up again in the second half of this tax year (from October to March 2024). This followed the Budget announcement that pensions would become liable for IHT from April 2027.
The FCA’s figures show that in total, over £53bn was taken out over the tax year in cases where pension pots were moved into drawdown but not fully emptied out.
The FCA’s figures show that in the six months from April 2023 16,447 pension pots worth more than £250,000 were taken into drawdown but not fully withdrawn. This roles to 18,283 in the second half of that tax year. However last year the figures jumped to 25,069 between April and September, rising to 33,475 between October and March.
Commenting on this latest data from the regulator LCP partner Steve Webb says: “These figures show how uncertainty about pensions and tax can move the market.
“In the six months before the October 2024 Budget there was a surge in larger pension pots being accessed, mainly because of fears about reductions in limits on tax-free cash.
“But after the Budget, where there was no change to tax free cash, withdrawals of large pots accelerated. This is likely to reflect the change in pensions and IHT, with people starting to explore ways of moving money out of the IHT net ahead of the 2027 changes.
“Given that pensions should be a long-term business, it is deeply disappointing that consumer behaviour is being driven so profoundly by uncertainty around public policy.”
AJ Bell head of public policy Rachel Vahey adds: “There was a surge in the amount of pension money accessed in the 2024/25 tax year as it surpassed £70bn for the first time, a 36 per cent increase on last year, according to new data from the FCA.
“But the concern is people aren’t making decisions based on what’s best for them but because they are worried about possible changes to pensions tax incentives from the government.
“This neatly demonstrates the damage that idle Budget speculation can cause, driving people to make knee-jerk reactions about their personal finances. Brits saving for retirement need more stability that this. Creating the right environment for long-term planning means removing the worry that goalposts could shift at any given moment.
“That is why we are calling on the chancellor to commit to a pensions tax lock, pledging not to make any changes to pensions tax incentives for the remainder of this Parliament.”