The was a rise in the number of people taking tax-free cash from pension plans last year, according to FCA data — amid speculation that the maximum amounts taken could be curtailed.
Almost two-thirds (64.5 per cent) of plans entering drawdown involved the saver taking a tax-free lump sum, a higher proportion than the previous year, where this figure stood at 61.9 per cent.
The regulator’s latest retirement income market data shows that in total there has been a 21.7 per cent increase in the value of withdrawals from pension plans, when compared to the previous year. In total almost £92bn was withdrawn from pension plans, compared to almost £75bn the year before.
This data comes amid continuing concerns about how savers are using pension freedoms and whether withdrawals are at sustainable rates.
However, the FCA data also shows a big jump in the number of pension savers buying annuities, as rates paid continued to remain at high levels. In total, annuity purchases increased 13.2 per cent compared to the previous year, with 100,144 pension plans used to purchase this guaranteed income for life.
The FCA’s figure show that more than one million pension plans were access for the first time in the year ending March 2026. — is a 7.4 per cent increase on the previous year, and the first time this number has passed the one million mark.
However, the data shows there was also a drop in the number of people fully encashing their pension plans – although this remained the most common way of accessing a pension. A total of 45.8 per cent accessing their pension plans cashed them in full, compared to 47.4 per cent last year.
The proportion of pots accessed with a value of £250,000 or more also increased, reaching 8.6 per cent, compared with 7.2 per cent in the previous year, and 4.8 per cent in the year ending 31 March 2024.
The FCA figures show that less than a third (30.8 per cent) of those accessing pension plans for the first time took financial advice – a figure that has remained broadly unchanged in recent years.
These figures relate to those accessing contract-based pensions, and do not include master trusts or other TPR-regulated plans.
Commenting on this data LCP partner, and former pensions minister, Steve Webb, says: “It is very worrying that uncertainties about government policy on tax and pensions seems to have driven very high levels of withdrawals from pension pots. 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.
“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”.
Fidelity pensions and investment specialist Jemma Slingo also commented on the significant jump in retirees taking tax-free cash, pointed out this followed a 63 per cent surge the previous year.
“Uncertainty is partly to blame. There was intense speculation about changes to retirement rules in the run-up to the 2025 Autumn Budget. People worried the Treasury would cut the amount you could access tax free from a pension, prompting hasty decision-making.
“Taking tax-free cash just because you’re scared the rules might change could hurt your retirement in the long-term – especially if you have no plan for how to use it.”
She adds: “Budget speculation is only part of the story, though. From April 2027, most unused pension funds will be brought within the scope of inheritance tax, in the same way as other savings pots. As a result, some wealthy retirees are keen to gift money from their pensions while they are still alive, in a bid to lower their family’s eventual IHT bill. This could also be contributing to higher tax-free and taxable withdrawals.
“Regardless of motives, it is clear that large amounts of money are leaving pensions. Total pension withdrawals rose by 22 per cent to £91.2bn in the period, but the number of pension plans accessed for the first time only increased by 7 per cent.”
Lumera commercial director of data and dashboards Maurice Titley says: “The latest figures show that more savers areaccessing their pension pots, while the total value withdrawn has risen by more than a fifth over the past year.”
“The rise in the proportion of larger pension pots being accessed, alongside the increase in people taking a pension commencement lump sum [tax-free cash], highlights the importance of ensuring savers have the right support when making decisions about how and when to access their retirement savings. These choices can have significant implications for tax and the level of income available throughout retirement.
“As more people reach retirement with DC savings, initiatives such as guided retirement and targeted support are likely to play an important role in supporting savers to achieve better outcomes. However, both initiatives will require providers to be able to leverage data at scale, whether that is to assign members to appropriate default pathways or provide more targeted guidance at the point they access their pension.
“Being able to use data effectively can help providers identify members who may be at risk of unintended tax consequences, and offer more timely support at key decision points. As the retirement landscape becomes more complex, providers will need the technology and data infrastructure to deliver this support consistently and at scale.”
Meanwhile Quilter’s retirement specialist Adam Cole says: “The FCA’s latest retirement income data paints a picture of retirees becoming increasingly pragmatic about how they generate income in later life.
“Perhaps the clearest example is the continued resurgence in annuity purchases. After years in the wilderness following the introduction of pension freedoms, higher interest rates and gilt yields have transformed annuity rates, allowing retirees to secure significantly higher levels of guaranteed income than was possible just a few years ago.
“Against a backdrop of market volatility, inflation uncertainty and concerns about making retirement savings last, it is perhaps unsurprising that more people are choosing to lock in a secure income stream for life rather than take on all the investment and longevity risk themselves.
“However, the data also highlights a continuing challenge. More than half of annuity purchases are still made without either regulated advice or guidance, despite the irreversible nature of many of these decisions.”
