The number of 55-year-olds making lump-sum pension withdrawals hit 116,000 in the past year, a five-year high, as savers rush to move money out of pension pots before inheritance tax changes take effect in 2027, according to research by Lubbock Fine Wealth Management.
The total withdrawn by those aged 55 rose to £2.3 billion, up from £2.1 billion the previous year and also a five-year high.
The government announced in the 2024 Autumn Budget that pensions would be brought within the scope of inheritance tax (IHT) from April 2027, ending their long-standing status as an IHT-efficient vehicle for passing wealth to dependents.
Andrew Tricker, chartered financial planner at Lubbock Fine Wealth Management, said many savers were withdrawing funds as early as possible to reduce anticipated tax liabilities for their families.
"What is surprising is that this trend has spread to people who have decades left based on average life expectancy," Tricker said.
Some of those withdrawing money early are choosing to pass funds to family members during their lifetime, taking advantage of the seven-year gifting rule under which gifts made more than seven years before death generally fall outside inheritance tax.
Nicholas Clark, also a chartered financial planner at Lubbock Fine, said the trend was likely to accelerate as the April 2027 deadline approached, particularly among those who could make withdrawals without triggering a significant tax liability.
Clark cautioned, however, that many savers were acting without fully thinking through the consequences.
"Pensions were widely seen as highly tax-efficient, so many people built and preserved very large pots to pass on wealth to their loved ones free of IHT," he said. "Some of them have now started to change course, often without fully thinking it through."
Tricker warned that money withdrawn from a pension is difficult to return, and that taking too much too soon could leave people short of funds in retirement, particularly given rising life expectancy and unpredictable health and care costs.
Clark said that in many cases it made more sense to keep funds within the pension and draw them down gradually, noting that income drawn from a pension could, in some circumstances, qualify under the gifts out of surplus income exemption, allowing it to be passed to beneficiaries free of inheritance tax.
The number of people eligible to access their pension early is set to fall from 2028, when the minimum pension access age rises from 55 to 57.