Pension warning: Retirees paid £87.2million tax after withdrawing pension pots in full

British pensioners who withdrew their retirement savings in a single lump sum paid a combined £87.2million in tax over six months, according to new analysis.

The figures, covering October 2024 to March 2025, were more than 20 per cent higher than during the same period a year earlier.

The analysis, based on Financial Conduct Authority data and carried out by Standard Life, highlights the tax costs associated with cashing in large pension pots in one transaction.

Those who withdrew pension pots worth £100,000 or more in full accounted for the largest share of the tax bill, with many likely paying significantly more tax than they expected.

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The analysis found 392 people withdrew pension pots worth £250,000 or more in full.

Each faced an estimated minimum income tax bill of £98,700.

A further 1,772 people withdrew the entirety of pension pots worth between £100,000 and £249,000.

Each of those savers incurred an estimated minimum income tax charge of £27,400.

Standard Life said these figures represented the minimum tax liability.

The calculations do not include any additional income retirees may have received, meaning many could have paid substantially more tax.

The figures also exclude tax paid on full withdrawals from smaller pension pots and income tax paid on phased withdrawals from retirement savings.

Standard Life said forthcoming changes to inheritance tax rules affecting pensions could influence how and when savers decide to access their retirement funds.

Mike Ambery, retirement savings director at Standard Life, warned that taking a pension in one large withdrawal can have unexpected tax consequences.

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He said: "What catches people out is how quickly a single withdrawal can push them into higher tax bands.

"In some cases, a decision that feels straightforward in the moment can mean a significant portion of the money they've worked hard to build up ends up going to tax."

Mr Ambery said many people face competing financial priorities when they retire, making a full withdrawal appear to be the simplest option despite the potential tax implications.

He urged pensioners to understand how pension withdrawals are taxed before making a decision.

Mr Ambery said: "Taking a bit of time to understand how withdrawals are taxed and spreading them more carefully, can make a real difference over time.

"Even relatively small changes to when and how you take money can help more of your savings go towards supporting your life later on."

The analysis suggests pension savers with larger retirement pots could reduce their tax bills by considering how and when they access their pension savings rather than withdrawing the entire amount in a single transaction.

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