Tax rules in this article were checked in October 2026. The Autumn Budget on 28 October 2026 may change them. Tax rules and pension regulations are subject to change. Always check current HMRC and government guidance before making decisions.

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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. Commentators linked the rise to the Autumn Budget 2024 (30 October 2024). Before it, there was speculation that tax-free cash might be cut, and the Budget itself announced that unused pensions would count towards inheritance tax from April 2027. There was similar speculation before the Autumn Budget 2025, but full FCA figures for 2025/26 haven’t been published yet.

Emma Sterland, chief financial planning officer at Evelyn Partners, which uncovered the figures in a Freedom of Information request, said on 05 September 2025 that 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.”

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.

Some people use it to pay off a mortgage, cover living costs or help family with a property deposit.

Your tax-free cash isn’t taxed. But the first taxable withdrawal (the part above your tax-free amount) is often taxed using an emergency code, which assumes the individual will continue drawing the same amount every month. This can mean paying too much tax at first. You can claim it back using an HMRC form (P55, P53Z or P50Z, depending on your situation), or HMRC will adjust it at the end of the tax year. In 2025, HMRC repaid about £187 million to people who claimed back overpaid tax on pension withdrawals, and more than £1.5 billion since 2015.

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, unused pension pots will count towards your estate for inheritance tax. This became law in the Finance Act 2026. Personal representatives will be responsible for working out and paying any inheritance tax due. Death-in-service benefits are excluded.

You can usually take up to 25% of a defined contribution pension tax-free, either as a single lump sum or as part of each withdrawal. There’s also a lifetime cap on tax-free cash across all your pensions, called the Lump Sum Allowance, which is £268,275 for the 2026/27 tax year. Any tax-free cash you’ve already taken counts towards this cap. Some people have a protected allowance that lets them take more.

What are the risks of withdrawing early?

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

• The taxable part of a withdrawal is added to your other income for the year, so a large taxable withdrawal could push you into a higher income tax band. Tax-free cash doesn’t count towards this.

• Once money leaves your pension, it’s no longer in the pension’s tax-free environment. Any interest, dividends or gains it earns afterwards may be taxable, depending on where you hold it (for example, an ISA or an ordinary savings account) and your allowances.

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

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

• Taking only your tax-free lump sum doesn’t usually affect future pension saving. But once you take any taxable money from a defined contribution pension flexibly (for example, as part of each withdrawal or through drawdown income), the Money Purchase Annual Allowance usually applies. This limits future tax-relieved contributions to defined contribution pensions to £10,000 a year (2026/27), including contributions from your employer. See GOV.UK’s guidance on pension allowances for the limit and exceptions.

The chart below shows the full new State Pension (£241.30 a week, or £12,548 a year in 2026/27) compared with the Retirement Living Standards for a minimum, moderate and comfortable retirement, for single people and couples. The new State Pension applies to men born on or after 6 April 1951 and women born on or after 6 April 1953. People born before those dates get the basic State Pension, which has a lower full rate. Your own amount depends on your National Insurance record, so check your State Pension forecast on GOV.UK.

What if rules do change?

The next Budget is on 28 October 2026. 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

• Lost pensions: how to find yours