£2.2 Billion in Withdrawals Reshapes the Pension Landscape — Why Are People Withdrawing Early?
- TBA
- Jul 25
- 4 min read
According to recent reports, driven by rising living costs and political uncertainty, hundreds of thousands of savers withdrew £2.2 billion from their pensions early last year.
New data released through a Freedom of Information request shows that over five years, the number of savers opting to access their pension flexibly ahead of retirement has increased by 18%.
Why are so many choosing to dip into their pension pots early rather than waiting until full retirement age?
1. Shifts in pension investment strategy prompt early withdrawals
In the latest Budget, Rachel Reeves announced plans to create a £25 billion ‘superfund’ to encourage pension investment in domestic infrastructure, clean energy and start-ups.
This reform aims to deliver stronger long-term returns by pooling pension assets and investing them in bigger projects — but it also introduces fresh uncertainty:
Investment risk concerns: Some savers fear their pension savings could be channelled into high-risk sectors like start-ups or emerging industries, which could make their portfolios more volatile. For example, the SAUL pension scheme at the University of London suffered short-term losses during the 2022 gilt crisis due to portfolio adjustments, shaking confidence in pension investment strategies.
Liquidity worries: The new policy requires more pension money to flow into illiquid assets (such as property or infrastructure). This could limit people’s ability to access cash when needed.
As a result, some choose to withdraw funds early to safeguard their money from potential losses and keep it flexible, avoiding possible future liquidity restrictions.
After all, if you suddenly need cash but can’t withdraw it easily, the financial consequences can be significant.
2. Tax changes create an incentive to withdraw early
Tax policy changes taking effect from 6 April 2025 have a direct impact on pension withdrawals:
Capital Gains Tax increase: From 6 April 2025, the main rate of Capital Gains Tax will rise from 20% to 24%, while Business Asset Disposal Relief will gradually increase to 18%. This leaves pension holders facing bigger tax bills, encouraging them to cash in before the new rates apply.
Pension bond returns: Although the Budget extended the sale of pension bonds, the one-year bond rate remains at just 2.8% — lower than many had hoped. Some savers feel the return on leaving money in a pension account is too modest, preferring to withdraw and reinvest elsewhere or spend it now.
Global taxation rules: From April 2025, the UK will adopt a residence-based worldwide tax system, meaning non-domiciled residents may have to pay higher tax rates when bringing overseas income into the UK. This could motivate some people to withdraw their pensions early to avoid higher future tax burdens.
3. Economic pressures and the rising cost of living
Today’s economic climate in the UK is increasing people’s dependence on pension savings:
High inflation and living costs: In 2025, UK inflation remains above target. Rising energy and food prices are adding to household financial strain. Some people feel forced to access their pensions early just to cover daily expenses or cope with emergencies.
Higher housing costs: The Budget has lowered the stamp duty threshold for first-time buyers, pushing up the cost of purchasing a home. Some are tapping into their pension savings to fund deposits — especially with expectations that property prices will keep rising.
Impact of the rising State Pension age: With the UK gradually raising the State Pension age, some nearing retirement might worry about receiving less in the future. This has prompted some to retire early and access their pension savings sooner.
4. Facing the UK pension challenge — tips for tax residents
Over many decades, the UK has built a multi-pillar pension system combining the State Pension, occupational pensions and private pensions.
Yet the system faces growing challenges. An aging population is placing ever greater pressure on public finances and social security, raising concerns about the sustainability of the State Pension.
Meanwhile, repeated economic shocks, high inflation and rising living costs limit real income growth — deepening people’s reliance on pensions while making it harder to preserve and grow pension wealth in a volatile environment.
With that being said, here are some ways to protect yourself against a potential pension squeeze:
Diversify your investments: Don’t rely solely on the State Pension or workplace pensions. Consider allocating some money into shares, bonds or funds, spreading risk across multiple assets. For example, investing in solid global funds can give you exposure to growth in different countries and sectors.
Boost your private pension savings: Make the most of tax reliefs and maximise your personal pension contributions where possible.
Delay retirement: Postponing retirement can increase your total pension contributions and raise your future payout. It also gives you more time to build personal wealth and ease pension shortfalls. (Of course, work a couple of extra years only if it suits you — it’s you doing the extra hours!)
Stay informed about policy changes: Keep up to date with government updates on pensions — such as changes to investment strategy or tax rules — so you can plan your finances ahead and adjust your pension assets to match policy directions.
Why TB Accountants?
Professional Assurance: Our team includes ACA members and ACCA-certified professionals, delivering services to the highest industry standards.
Responsive Service: We respond to your inquiries within 24 hours, ensuring efficient communication across time zones.
Multilingual Support: Services available in English, Mandarin, Cantonese, Japanese, French, German, Spanish, Italian, Turkish, and more.
Trusted by Clients Worldwide: Consistently praised by global clients for proactive, professional, and reliable accounting and tax support.
For individuals and businesses looking for UK taxation services, use our contact form to get in touch for more information.
Get in touch with us at info@tbagroup.uk or for a free one-to-one consultation.
