Pension withdrawals rise sharply amid uncertainty
Concerns are growing within the pensions sector over a sharp rise in pension withdrawals, highlighted by the Financial Conduct Authority’s (FCA) Retirement Income Market Data analysis. The total value of withdrawals from pension pots increased by 21.7 per cent to £91.2bn in the year ending 31 March 2026, and has risen from £53.6bn in 2023/24, a 70 per cent increase over two years.
Steve Webb, partner at LCP, described the trend as “very worrying” because of the uncertainty surrounding pension and tax policy.
LCP noted that speculation around a cap on tax-free cash and the introduction of inheritance tax (IHT) on pensions drove additional withdrawals over the past two years.
Pension Withdrawal Trends
The speculation around caps on tax-free cash was unfounded, yet it did not stop people from rushing to access their pensions, potentially losing out on further investment returns. The imposition of IHT represents a genuine change that is reshaping retirement planning for many households.
Webb argued that a period of stability in government tax policy is desperately needed, as continuing uncertainty is destabilizing and distorting people’s financial planning. Rachel Vahey, head of public policy at AJ Bell, echoed these concerns and warned that the market could see further volatility if the policy environment remains fluid.
Vahey noted that while a larger share of the population now holds defined contribution (DC) pots, the real worry is that individuals are making decisions without a long-term retirement strategy. Instead, they react to rumours about possible changes to pension tax incentives or tax rules, which can lead to sub-optimal outcomes.
Impact on Retirement Planning
Damon Hopkins, head of workplace savings at Broadstone, said the scale of the increase suggests that changing behaviours and decisions are playing an important role. Recent amendments to IHT rules may be influencing how people think about their pension savings, prompting many to reassess their withdrawal timing.
Some retirees are weighing the balance between preserving pension wealth for future generations and using those assets to support their own retirement needs. At the same time, the rise in annuity purchases demonstrates that certainty remains highly valued among older savers.
