Retirees pay 87m in tax on savings
Retirees who cashed in their pension pots worth £100,000 or more paid at least £87.2m in tax over six months, according to an analysis of Financial Conduct Authority data by the company. This amount, which covers the period between October 2024 and March 2025, is over 20 per cent higher than the same period the previous year.
The data shows the potential tax implications of taking savings in one go, which can trigger unexpectedly high tax bills. Standard Life noted that a total of 392 people fully withdrew pension pots worth at least £250,000, each triggering a minimum estimated income tax bill of £98,700.
A further 1,772 people fully cashed in pots worth between £100,000 and £249,000, each paying at least £27,400 in tax. These figures are based on minimum estimates and focus on those who fully withdrew pots of £100,000 or more, excluding tax paid on full withdrawals from smaller pots or regular withdrawals.
Any full pension withdrawal will result in anything above the 25 per cent tax-free lump sum usually being treated as income, potentially pushing savers into higher and additional rate tax bands. This can have significant implications for retirees, who may not be aware of the potential tax liabilities associated with their pension withdrawals.
Mike Ambery, retirement savings director at Standard Life, noted that life doesn’t always follow a set path, and when people reach the point of accessing their pension, there are often a lot of competing priorities. He added that taking a larger amount upfront may seem like the simplest option, but it can come with a sting in the form of a higher tax bill than many expect.
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Ambery also noted that tax is becoming an increasingly important part of how people think about their pensions, especially with changes to inheritance tax coming in April 2027. This may lead some people to decide to access their savings earlier than they otherwise would have, but they must weigh the pros and cons carefully, as taking money out sooner can mean bringing forward income tax liabilities and potentially paying more than expected.
As retirees consider their pension options, they must consider the potential tax implications of their decisions. With the right planning and advice, retirees can make informed decisions about their pension withdrawals and minimize their tax liabilities.
The tax liabilities associated with pension withdrawals can be significant, and it’s essential for retirees to understand how these liabilities are calculated. According to the data, a single withdrawal can push retirees into higher tax bands, resulting in a significant portion of their pension pot being paid in tax.
In some cases, a decision that feels straightforward in the moment can mean a significant portion of the money retirees have worked hard to build up ends up going to tax. As Ambery noted, what catches people out is how quickly a single withdrawal can push them into higher tax bands.
Retirees need to plan carefully and consider the implications of their decisions to avoid unexpected tax bills.
