This article was last updated July 2026. Tax rules and pension regulations are subject to change. Always check current HMRC and government guidance before making decisions.

Tax-free lump sum pension withdrawals rose more than 60% in the 2024/25 financial year to £18.1bn, compared to £11.25bn the previous year, Financial Conduct Authority figures show. Full figures for 2025/26 are not yet published, but early indicators suggest withdrawal volumes may have stabilised as savers adjusted to the post-Budget tax landscape.

Currently, pensions can be accessed from age 55. The minimum pension age is scheduled to rise to 57 on 6 April 2028, which may be relevant for those approaching 55 in the next two years. Individual circumstances vary and the timing of any withdrawal decision is a significant one. Regulated financial advice is recommended before acting.

For many, this represents a vital source of cash to pay off mortgages, cover living costs or help adult children with property deposits.

But first-time withdrawals are often taxed using an emergency code, which assumes the individual will continue drawing the same amount every month. This can mean a hefty overpayment in the short term, with refunds available later through a self-assessment return or by submitting forms to HMRC. In 2025 alone, HMRC was forced to repay over £190 million to savers who were overtaxed on their first pension withdrawals due to emergency code errors.

Pension inheritance rules add another layer of complexity. Currently, pots passed on after death can usually be taken tax-free if the saver dies before 75. If death occurs later, beneficiaries must pay income tax at their own rate.

From April 2027, the government has announced that unspent pension pots will be brought within the scope of inheritance tax for the first time (gov.uk, Autumn Budget 2025). The precise implementation is subject to ongoing consultation and readers should check the latest HMRC guidance for updates.

Following the Autumn Budget 2025, the 25% tax-free lump sum remains capped at £268,275 for the 2026/27 tax year (Source: gov.uk, Autumn Budget 2025). This limit was maintained despite speculation ahead of the Budget that it might be reduced.

Emma Sterland, chief financial planning officer at Evelyn Partners, which uncovered the figures in a Freedom of Information request, said the rush was “unprecedented”, adding: “You can’t help feeling that much of this increase is a slightly panicked dive into pensions sparked by uncertainty over policy change.”

What are the risks of withdrawing early?

While taking money now locks in the 25% tax-free entitlement under current rules, there are downsides:

• You could push yourself into a higher income tax bracket by taking more than you need.

• Withdrawn money may lose its tax-advantaged growth if not reinvested.

• Taking cash too soon could leave you short later in retirement.

• Accessing a pension early could affect entitlement to some benefits.

What if rules do change?

Even if changes are announced, they may not take immediate effect. In the past, major pension reforms have included transition periods. However, with the public finances under strain, a sudden change can’t be ruled out.

Savers unsure about whether to withdraw funds now should seek regulated financial advice.

Read more:

• The amount of inheritance tax charged on gifts, year by year – and how to give money tax-free

• Pension tax 'disgrace' as £1bn overpaid by people withdrawing lump sum - how to claim refund

• Lost pensions worth £26bn could go unclaimed as one in five has missing pot - what to do