HMRC issues warning as thousands urged to 'withdraw' pension after new rule change
UK households are currently grappling with soaring living costs and political instability. meaning many are left increasingly tapping into their pension savings ahead of time. It comes as figures from HMRC have revealed that a staggering £2.2billion was withdrawn last year.
The data shows a notable rise in activity among those aged 55 to 56, with 120,000 making taxable withdrawals in 2023-24. This equates to an 18 per cent rise over the last five years.
Under the existing regulations, individuals can access 25 per cent of their pension pot tax-free once they reach 55, up to a maximum of £268,275. Withdrawals above this limit are taxed as income, as reported by the Mirror.
Jason Hollands of Bestinvest weighed in on the situation, noting: "Demographic patterns will be a factor. But other possible influences are a rise in business exits and second property disposals ahead of the election enabling more people to take early retirement."
Daniel Hough from RBC Brewin Dolphin, looking at it from a wealth management angle, remarked: "Retirement is lasting longer for people – by accessing their pensions at 55, there will be more pressure on providing a sustainable income throughout retirement, however long it may last."
Experts warn of risks as numerous savers tap into pensions before retirement, with Andrew Tricker of Lubbock Fine Wealth Management stating, "The large number of savers withdrawing from their pensions before actually retiring is very concerning. Many of them are withdrawing too much – and too early."
Financial specialists caution that savers might overspend to avoid inheritance tax due to new Labour Party regulations. Kate Smith of Aegon said, "The expectation is that those individuals with large estates will access their pensions earlier to avoid inheritance tax, and later life tax planning will become increasingly important."
The plans have caused "concern and some confusion" for those nearing retirement, according to Mr Hough. Chancellor Rachel Reeves had announced the end of inheritance tax reliefs on pension savings by 2027, prompting many to reassess their pension drawdown strategies, as Britons can currently pass on pension wealth tax-free.
How can I find out how much State Pension I could get?
You can get a State Pension forecast online from the Check your State Pension service here. This provides personalised information, including your State Pension age, an estimate of how much State Pension you may get at that point and if you can increase this amount. It also allows you to view your National Insurance contribution history.
More information about deferring your State Pension can be found on the GOV.UK website here.
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