Pension Withdrawals Up 70% as Tax Fears Grow Before the Autumn Budget

Savers withdrew £91.2bn from pension pots in 2025-26, up 70% from £53.6bn in 2023-24, according to figures cited by the investment platform AJ Bell. The increase applies to cash taken from pots accessed for the first time, and it has been linked to uncertainty over tax policy ahead of the Autumn Budget on 28 October 2026.

Two waves of withdrawals

The figures are for pots accessed for the first time, and they do not show what the money was used for. Sky News does not break the total down by purpose, so the data cannot tell how much went on spending, debt repayment or other needs. The normal minimum pension age, the earliest age at which most people can usually take money from a defined contribution pension, is 55 and rises to 57 on 6 April 2028, according to MoneyHelper.

Withdrawals first rose in 2024-25, in the run-up to the Labour government's first Budget. They rose again after the government announced that most unused pension funds and pension death benefits will fall within the value of an estate for inheritance tax from 6 April 2027. Until then, most pension funds sit outside inheritance tax, which is why the change has attracted so much attention.

Former pensions minister Steve Webb, now a partner at the consultancy LCP, said the pattern reflects policy uncertainty. "Uncertainties about government policy on tax and pensions seem to have driven very high levels of withdrawals from pension pots," he said. Webb also said that speculation about caps on tax-free cash was unfounded, but that it still prompted people to rush to access their pensions. Some of them may give up further investment returns as a result.

What changes from 6 April 2027

The government's announcement means that from 6 April 2027, most unused pension funds and most pension death benefits will be counted in the estate of someone who has died. Inheritance tax is charged at 40% on the part of an estate above the relevant thresholds. Sky News reports that where a person dies after the age of 75, any inherited pension income is usually free of inheritance tax, but withdrawals are subject to income tax.

After the change, the pension amount passed on will be liable for inheritance tax first. Beneficiaries will then pay income tax only on the remainder, which Sky News says is intended to avoid a "double tax hit". The change alters the order in which the two taxes apply rather than setting a new rate on pensions.

Who has to deal with the paperwork

Personal representatives, the people appointed to settle a deceased person's affairs, will have to take "reasonable steps" to identify the pension savings, value them and pay the tax due. HMRC's technical note does not spell out what those steps will involve in practice. The note says representatives may also need to contact pension companies and insurance schemes directly to notify them of a death and request information. Solicitors have warned that families often deal with fragmented records, old workplace schemes and several providers.

The tax deadline is unchanged. Inheritance tax is due six months after the date of death, and unpaid amounts accrue interest at the Bank of England base rate. HMRC has also introduced a withholding mechanism. Executors can direct pension providers to hold back up to 50% of any lump-sum pension benefit that may be liable for inheritance tax, for up to 15 months. Personal representatives and beneficiaries can ask the provider to pay the tax directly to HMRC.

Exemptions and the timetable

Existing rules on spouses and civil partners remain in place. Any unused inheritance tax allowance can be transferred to the surviving partner, so a couple can pass on up to £1m without an inheritance tax charge, according to Sky News. HMRC has also said that most death-in-service benefits will stay exempt, although scheme administrators may need to report them. Joint life annuities and dependants' scheme pensions are exempt from the new legislation.

HMRC's timetable sets 6 April 2027 as the commencement date for the rules on information sharing. Draft guidance is due to go to industry stakeholders in the autumn and winter of 2026-27, and final guidance and supporting materials are expected in spring 2027. When Sky News reported on HMRC's technical note in June 2026, it said the full details had not yet been released and that HMRC was still working with industry experts on the finer points of the legislation. Until the legislation is final, the detail of several provisions may still change.

The Budget and the pressure on policy

Investment platform AJ Bell has written to the Chancellor, John Healey, asking for a commitment to pension tax stability before the Budget on 28 October. Its chief executive, Michael Summersgill, said the figures "should end any doubt about the real-world consequences of allowing pension tax speculation to run unchecked". He added that pulling money out of pensions early reduces the capital available for long-term investment.

Webb has made a similar argument, saying the country needs "a period of stability in government tax policy". The Treasury had not commented on the figures in the Sky News report. Savers who are considering pension withdrawals or changes to their estate planning will be watching the Budget closely, as well as the guidance HMRC publishes ahead of the April 2027 start date.