Pensioners warned tax raid on retirement pots 'never been more likely'

Currently, people aged 55 and above can access up to 25 per cent of their pension savings without paying tax, with a maximum limit of £268,275.

Experts believe this allowance could be targeted as the government seeks new revenue sources for the November 26 Budget.

Two senior retirement specialists have admitted they are considering withdrawing money early from their own pensions because of fears the rules may change.

Tom McPhail, governor at the Pension Policy Institute think tank, said: “I think the risk is real and immediate. I’ve never known a set of political and fiscal circumstances when a tax raid on pensions, and in particular the tax-free lump sum, has been more likely.”

"As a consequence, I’m personally actively considering bringing forward the withdrawal of a tax-free lump sum from my pension," McPhail told The Telegraph.

He explained that since he planned to access the funds within a few years anyway, taking precautionary action now made sense.

Stephen Lowe, director at retirement company Just Group, confirmed he was thinking along the same lines.

He responded "Ditto" after Mr McPhail revealed his intentions on social media platform X, where Mr Lowe had first raised the issue with the tongue-in-cheek line "Asking for a friend."

Financial Conduct Authority figures reveal that pension holders withdrew £18billion in tax-free cash during the 2024/25 tax year, representing a 61 per cent jump from £11billion the previous year.

The latter half of the tax year saw particularly intense activity, with nearly 60 per cent of withdrawals occurring between September and March.

Emma Sterland, chief financial planning officer at Evelyn Partners, suggested families were reacting not only to rule changes due from 2027 — when pension assets will be included in inheritance tax — but also to fears over tax-free cash being cut.

She said: "But the fact that 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 that it might still do so at the next."

Financial planners usually caution against rushing to withdraw funds.

Money left inside a pension grows tax-free, while cash taken out and placed in savings accounts is at risk of being eroded by inflation and taxed on interest above personal allowances. Financial planning professionals caution that hasty withdrawals could prove costly.

Funds remaining within pensions benefit from tax-free growth on investments and returns, whilst cash held in savings accounts faces erosion from inflation and potential income tax on interest exceeding personal allowances.