UK Pension Savers Withdraw £18bn Amidst Inheritance Tax Concerns

UK pension savers have significantly increased withdrawals of their 25% tax-free lump sums, with withdrawals rising more than 60% to approximately £18.1 billion in the 2024/25 financial year compared to the previous year. This surge, which saw the number of savers withdrawing tax-free cash jump by around 30-33%, has been driven largely by fears about government changes, including the announcement that pensions will be subject to inheritance tax starting in April 2027. Despite Chancellor Rachel Reeves choosing not to alter the tax-free lump sum rules in the latest Budget, many savers remain anxious about potential future restrictions, prompting what experts describe as a panicked rush to access funds to secure financial advantages such as paying off mortgages or gifting to family. Financial advisors warn that while the withdrawals might provide short-term benefits, they could jeopardize the long-term sustainability of retirement savings. The government expects these policy changes to raise £1.5 billion in revenue by 2030, but concerns about the impact on savers persist amid broader economic pressures like the cost of living and rising interest rates. Experts caution against hasty withdrawals, emphasizing the potential loss of investment growth and income sustainability for savers in later years.