Savers withdraw £22bn from pensions over Labour levy fear

By the Editorial Team · Friday, September 25, 2026

UK savers withdrew nearly £22 billion in tax-free pension cash during the 2025-26 tax year, almost doubling withdrawals from before Labour took office in July 2024. This surge is driven by fears over upcoming policy changes, including new inheritance tax rules on pensions starting in 2027, which could significantly reduce the value of pension inheritances.

Savers in the United Kingdom have withdrawn nearly £22 billion in tax-free cash from their pensions during the 2025-26 tax year, nearly doubling the amount taken out before the Labour Party assumed government in July 2024. Data from the Financial Conduct Authority (FCA) reveals a sharp increase in pension withdrawals, with £11.2 billion taken out in the year prior to Labour’s rise to power and £18.3 billion in 2024-25. According to analysis by AJ Bell, the combined withdrawals over the 2024-25 and 2025-26 periods exceeded £40 billion, surpassing the total of the preceding five years under the previous government.

This surge in pension withdrawals is largely attributed to concerns about potential policy changes unveiled ahead of the forthcoming Budget. Initially, fears circulated that the government might reduce the existing £268,275 cap on tax-free lump sums from pensions, prompting savers to access their funds early. Although no such cap reduction has been implemented, a policy announced by then-Chancellor Rachel Reeves to bring pensions within the scope of inheritance tax starting in April 2027 has further accelerated withdrawals.

Under the current UK inheritance tax regime, assets above £325,000 are subject to a 40 percent tax, which can increase to £500,000 when passing on a property. While pensions transferred between spouses and civil partners will remain exempt from inheritance tax, beneficiaries may face combined income and inheritance tax rates totaling up to 67 percent on pension inheritance.

Steve Webb, a partner at LCP and former pensions minister, noted that while the government has yet to reduce pensions tax relief in its initial Budgets, apprehension about possible future tax increases has influenced savers’ behavior. “People understandably assume that big tax rises may be coming, and pension tax relief is often touted as a possible option,” Webb said. The government has estimated that taxing pensions as part of inherited estates could generate up to £1.5 billion in revenue by 2030.

This wave of pension withdrawals reflects broader anxiety among savers about impending fiscal measures amid ongoing government discussions about addressing the country’s public finances. Analysts say that these concerns have prompted decisions that may ultimately undermine long-term retirement savings.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.