UK retirement savers fully cashing in pension pots worth £100,000 or more handed over a total of at least £87m in tax in six months, according to analysis of FCA data by Standard Life.
This number also represents a 20 per cent year-on-year increase for the same time period.
In total, 392 people fully encashed pension pots worth at least £250,000, each triggering a minimum estimated income tax bill of £98,700. A further 1,772 people fully cashed in pots worth between £100,000 and £249,000, each paying at least £27,400 in tax.
The final tax bill for those who choose to cash in their pension in one go will also depend on someone’s wider income, which means many people could end up paying more than these figures suggest.
When pensions are fully encashed, anything above the 25 per cent tax-free lump sum is usually treated as income. This means large withdrawals can quickly push savers into higher and additional rate tax bands, with income above £125,140 taxed at 45 per cent.
Mike Ambery, retirement savings director at Standard Life, says: “Life doesn’t always follow a set path, and when people reach the point of accessing their pension, there are often a lot of competing priorities. For some, taking a larger amount upfront will feel like the simplest option, but it can come with a sting in its tail in the form of a higher tax bill than many expect.”
Standard Life also pointed to free sources of guidance available, such as the government’s Pension Wise service, which can help explain how pensions work and what to consider before accessing savings.