- UK financial services regulator to publish figures on Thursday (24 September) charting scale of tax-free cash withdrawals in 2025
- Former chancellor Rachel Reeves’ second Budget last November was mired in pension tax rumours…
- …which followed a £10 billion surge in pension tax-free cash withdrawals prompted by speculation around Budget 2024
- Pension savers can access 25% of their pot tax-free from age 55* but accessing the money prematurely can damage retirement plans
- AJ Bell has championed the case for a Pension Tax Lock, a pledge to protect key pension tax incentives in the form of tax-free cash and income tax deferral
- FCA retirement income data will also lift the lid on the total value of pension withdrawals, the number of people accessing their pension for the first time and how many purchased an annuity
Data to be published this week will shine a light on the extent of excess pension tax-free cash withdrawals prompted by uncertainty around the 2025 Budget.
The FCA will on Thursday publish its annual retirement income market data covering 2025/26, revealing the value of pension commencement lump sum (PCLS, otherwise known as tax-free cash) payments from pensions**.
AJ Bell’s analysis shows in the five tax years prior to the general glection campaign (2018/19 to 2022/23) tax-free cash withdrawals across FCA regulated firms averaged £7.9 billion per year and never rose above £8.7 billion despite a post-Covid bounce in withdrawals.
However, withdrawals then increased ahead of the 2024 election and rose dramatically to £18.3 billion in 2024/25, indicating a £10 billion increase spurred by rumours of a possible cut to tax-free cash at the Autumn Budget 2024.
Thursday’s figures will show the extent of tax-free cash withdrawals in 2025, when former chancellor Rachel Reeves’ second Budget precipitated a wave of pensions tax uncertainty before the Treasury belatedly briefed that tax-free cash entitlement would not be altered.
AJ Bell has campaigned for a Pension Tax Lock guaranteeing stability on the two core tax incentives in-built in the pension system: Tax-free cash and tax deferral on contributions, otherwise referred to as pensions tax relief.
AJ Bell public policy director, Tom Selby, says:
“The 2025 Budget was widely criticised as a bit of a mess, with Treasury briefings about potential tax measures running wild and pension savers caught in the crossfire. This Thursday, we’ll find out the extent to which savers were unnecessarily panicked into pulling out their tax-free cash. People making decisions about their pensions based on fear is clearly undesirable, particularly as such decisions are irreversible and can lead to significant financial harm. This behaviour is also the opposite of what the government wants as it attempts to harness pensions capital to drive investment into UK Plc.
“This year’s Budget has been mercifully quiet so far, with speculation seemingly driven more by outside lobbying than unhelpful kite flying from with government. But that doesn’t mean chancellor John Healey has vanquished the spectre of pension tax raids. Rather than simply saying nothing, he should seize the opportunity to commit to not touching either tax-free cash entitlements or tax relief for the long-term. This would put the government squarely on the side of people who do the right thing and save for retirement, support UK capital markets and, crucially, wouldn’t cost the Exchequer a penny.”
FCA retirement income data
The FCA’s retirement income data charts PCLS withdrawals, with AJ Bell analysis highlighting a surge in withdrawals to over £18 billion in 2024/25, indicating an increase of around £10 billion compared to the average prior to the last general election campaign.
Source: AJ Bell/FCA retirement income data.
The data to be published Thursday is expected to cover PCLS withdrawal figures for 2025 as well as a range of other retirement income statistics, including the total number of pensions accessed for the first time, the number of pension policies entering drawdown, annuity sales, the total value of pension withdrawals and the number of pension savers taking regulated advice when accessing their retirement fund.
Why taking tax-free cash early matters
From age 55* Individuals are normally entitled to take 25% tax-free cash from a pension up to a limit of £268,275. However, there is no requirement to take the money immediately and leaving it in a retirement account until the money is needed means it continues to benefit from tax free growth inside the pension.
Taking the money out of a pension can be detrimental to someone’s financial position if they leave the money in cash and/or hold it outside a tax wrapper.
Figures from AJ Bell show that someone withdrawing £100,000 tax-free cash could be around £51,000 worse off over ten years if they park the money in a cash savings account***. Even moving the money gradually into a stocks and shares ISA could leave them thousands worse off due to the tax incurred before the money could be moved into investments within the tax wrapper.
Pension Tax Lock
AJ Bell has consistently campaigned for government to commit to pension tax stability, with a focus on key tax incentives – tax-free cash (pension commencement lump sum) and tax relief.
Constant speculation about potential changes to retirement saving incentives, particularly tax-free cash, undermines confidence in the pensions system and leads to people making irreversible decisions based on fear, rather than their long-term financial goals. This is an unacceptable position given pensions form the cornerstone of long-term financial planning and personal financial responsibility.
Furthermore, it runs counter to wider government efforts to boost pensions adequacy and drive greater levels of investment, including in the UK economy.
The Tax Lock proposal calls for a government commitment to stability on the two core tax incentives in-built in the pension system: Tax-free cash, also called pension commencement lump sums (PCLS); and tax deferral on contributions, otherwise referred to as pensions tax relief.
A parliamentary petition launched by AJ Bell in 2025 quickly attracted over 20,000 signatures from the public and financial advisers. It called for a government commitment not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions. The petition and the government’s response can be found here.
AJ Bell wrote to new Chancellor, John Healey, following his appointment in July 2026 to outline the extent of tax-free cash withdrawals at recent Budgets and urge him to commit to pensions tax stability to avoid a repeat.
*NMPA set to rise to 57 from April 2028
**FCA: Thursday 24th September; Data: Retirement Income Market Data 2025/26
***Assumes £100,000 tax free cash withdrawn age 55 and held in cash accounts paying 4% compared to pension investments with an annual return of 6% net of charges. Individual is higher rate taxpayer with £500 personal savings allowance paying 42% tax on cash interest from April 2027.
