Hundreds of thousands of retirees could be paying far more tax than necessary when accessing their pension savings, experts have warned.
Many savers are choosing to cash in their entire pension pots in one go, a move that can push them into higher tax bands and trigger unexpectedly large tax bills.
Around 462,160 pension plans were fully withdrawn during the 2024-25 tax year, according to fresh analysis from TPT Retirement Solutions.
The pension provider warned that taking a retirement pot as a single lump sum can leave savers handing more money to HMRC than they need to, particularly if withdrawals are not carefully planned.
Georgie Edwards, DC Proposition Associate Director at TPT Retirement Solutions, said: "Full withdrawals are taxed as income, often pushing people into higher tax brackets unnecessarily.
"It highlights the need for better guidance so retirees don’t erode their savings or pay more tax than they need to."
The number of people cashing in their pensions in full has risen by 29 per cent since the 2018-19 tax year, when 357,122 plans were fully withdrawn.
That represents an increase of 105,038 savers a year choosing to empty their pension pots entirely.
According to the analysis, the trend has accelerated particularly sharply among older retirees.
Those aged 65 to 74 have driven the sharpest increase, with full cash-outs rising by 75 per cent over the seven-year period.
Savers between 55 and 64 saw a more modest 15 per cent uptick in complete withdrawals during the same timeframe
| GETTYBy contrast, savers between 55 and 64 saw a more modest 15 per cent uptick in complete withdrawals during the same timeframe.
When retirees withdraw their entire pension in one go, the full amount is treated as taxable income for that year.
This can push savers into a higher tax bracket than they would otherwise occupy, meaning a substantial chunk of their retirement savings ends up going directly to HMRC.
The problem is particularly acute for those who might have avoided the higher rate threshold had they spread their withdrawals across multiple tax years.
Policymakers have flagged growing concerns about the UK's retirement savings gap
| GETTYPolicymakers have flagged growing concerns about the UK's retirement savings gap, with the surge in full withdrawals suggesting many people simply do not have enough saved to generate meaningful income through gradual drawdown arrangements.
The scale of modest pension pots being emptied is striking, with more than 300,000 of those withdrawn in full during 2024-25 valued at less than £10,000.
A further 112,526 cashed-out pots were worth between £10,000 and £29,000, underscoring concerns about inadequate retirement provision.
Partial withdrawals have also doubled over the period, with ad hoc cash-outs jumping by 101 per cent from 163,335 plans in 2018-19 to 328,419 last year.
The total value of these piecemeal withdrawals reached £5.7billion in 2024-25, up from £3billion seven years earlier
| GETTYThe total value of these piecemeal withdrawals reached £5.7billion in 2024-25, up from £3billion seven years earlier.
Such irregular access to pension funds can similarly trigger substantial tax liabilities.
Ms Edwards said: "The rise in people cashing in their pensions in full is a worrying signal about retirement adequacy in the UK.
"For many, it's not a strategic choice but a sign their savings aren't sufficient and some may also be reluctant to consolidate pots, missing the chance to build a more sustainable income.
"In some cases, savers are stuck in legacy products that don't offer flexible options like phased drawdown or regular UFPLS, effectively forcing higher withdrawals than they'd prefer and increasing their tax exposure."