Retirees rush to grab record £18billion from pensions amid fears Rachel Reeves could cut tax-free cash in Budget

New data from the Financial Conduct Authority, obtained by wealth manager Evelyn Partners, reveals an unprecedented surge in the number and amount of Pension Commencement Lump Sums (PCLS) taken out in the 2024/25 financial year.

In the six months up to March 2025, savers withdrew £10.43billion tax-free from their pensions. That was 36.5 per cent more than the £7.65 billion taken in the previous half-year, and a 72 per cent increase compared with the £6.07 billion taken in the six months to March 2024.

Across the whole 2024/25 tax year, £18.08billion was taken as tax-free cash, a 60.7 per cent rise on the £11.25billion withdrawn in 2023/24.

The number of savers accessing their tax-free lump sums also jumped. In the six months to March 2025, 111,869 people took money, up 33 per cent on the same period a year earlier. Over the full year, the number rose 29.1 per cent compared with 2023/24.

Emma Sterland, Chief Financial Planning Officer at Evelyn Partners, said: "These are quite startling figures showing that the country’s pension savers have been in an unprecedented rush to take their tax-free lump sums.

"That withdrawals soared 72 per cent to more than £10 billion in the second half of the last financial year is an extraordinary increase compared to the period just before the last General Election, and it seems certain some of this was prompted by changes, both actual and feared, to Government policy on the taxation of pensions, as well as pressures such as the cost of living and higher interest rates."

Sterland added that some families were likely reacting to changes announced in the October 2024 Budget. From April 2027, unspent pension assets will be included in inheritance tax calculations.

She said: "But the fact that PCLS withdrawals were already surging rapidly in the summer of 2024, and the sheer volume since then, suggests strongly that there is another factor at play – the fear that the Government would cut tax-free cash in some way at the last Budget, and might still do so at the next. This is backed up by our conversations with clients."

Most savers can take 25 per cent of their pension tax-free, up to a maximum of £268,275 since the Lifetime Allowance was scrapped in 2023. But speculation has swirled that the Treasury could reduce the cap to £100,000 or lower.

Sterland said: "The 25 per cent tax-free cash is a treasured pension benefit and hugely important to savers. Many savers have a specific purpose in mind for their PCLS such as clearing outstanding mortgages, gifting to children, or a carefully thought-out income strategy – and while they ideally might not take it quite yet, they are also wrestling with the fear that if they don’t it could be curtailed, and they will lose out."

But she also warned that cashing in early can backfire. "Taking tax-free cash early, without a particular need for it, means that you are taking funds that are growing in a tax-protected environment to one where they could be subject to capital gains, dividend or savings interest taxation," she said.

Sterland also pointed out that withdrawing early can increase inheritance tax liabilities: "If someone withdraws their tax-free cash now – when it is still exempt from IHT while it sits in the pension – and then dies before April 2027, they will have taken their funds from an IHT-free environment to a taxable one, as the money will enter their estate for IHT purposes, even if they gift it."

Looking ahead to the Budget later this year, she warned that cutting the benefit would be "deeply unpopular".

Sterland said: "A reduction in tax-free cash would feel to many who have yet to take their PCLS, whether they are retired yet or not, like the goalposts are being moved as they’re halfway down the pitch and would be deeply unpopular. So it’s likely – and hoped – that if any such step is on the cards, then transitional arrangements would be put in place."

She added that tinkering with pensions could discourage saving at a time when the Government is trying to boost retirement provision: "A danger for the Government is that tinkering with tax-free cash could weaken pension saving at a time when they have launched a commission to look at how it can be stimulated, and when state pension provision is coming under the spotlight as being unsustainable in the long term."