Retirees hit with £87m tax bill after cashing in pension pots

id

• A minimum of £87.2 million was paid in tax on the largest full pension withdrawals in just six months – up over 20% year-on-year
•  392 people paid at least £98,700 each after cashing in pots over £250,000
• Thousands more hit with five-figure tax bills this year after accessing pensions in one go
• Upcoming changes to pension inheritance tax rules could influence how and when some people choose to access their pension savings
• Standard Life shares top tips to help avoid costly tax traps

Brits fully cashing in pension pots worth £100,000 or more handed over at least £87.2 million in tax in just six months, according to new analysis of FCA data by Standard Life, a retirement specialist focused entirely on retirement savings and income. The figure, covering October 2024 to March 2025, is more than 20% higher than the previous year, highlighting how taking savings in one go can trigger unexpectedly high tax bills, with many retirees paying far more than they might have anticipated.¹

In total, 392 people fully encashed 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 people who fully withdrew pension pots of £100,000 or more. They don’t include tax paid on full withdrawals from smaller pots or regular withdrawals. The final tax bill for those who choose to cash in their pension in one go will also depend on someone’s wider income, which means many people could end up paying more than these figures suggest.

How large withdrawals can quickly increase tax bills

Someone fully withdrawing a pot worth £174,500 - the midpoint of the £100,000 to £249,000 range - might face a tax bill of around £64,700, before factoring in any additional income.² At the upper end, the tax impact becomes even more stark. Someone cashing in a £500,000 pension in one go could face a tax bill of more than £150,000, while withdrawals of £1 million could result in £300,000 or more going to HMRC.

When pensions are fully encashed, anything above the 25% tax-free lump sum is usually treated as income. This means large withdrawals can quickly push savers into higher and additional rate tax bands, with income above £125,140 taxed at 45%.³

While these pots seem large, the reality is many of those affected are simply people accessing savings they’ve built up over decades, only to find a significant portion goes straight to the taxman. 

id

The findings come ahead of changes to how pensions are treated for inheritance tax. While pensions can often be passed on tax-efficiently today, from next year changes may mean some savers consider withdrawing funds earlier – even if that means paying income tax – rather than leaving them exposed to inheritance tax later.

Mike’s top tips to avoid a big pension tax bill

1. Watch the £50k and £125k thresholds: “Income above £50,270 moves into higher-rate tax, and above £125,140 into additional rate (although the banding works differently in Scotland). What we often see is that a single withdrawal can push people across both thresholds in one go, which significantly increases the amount of tax they pay. Taking a step back and working out how a withdrawal fits alongside your other income can help avoid this. Spreading withdrawals across tax years is one of the simplest ways to manage this more effectively. Importantly, pension flexibility means tax-free cash doesn't have to be taken as a single event. Taking your time and seeking guidance or advice where possible can help you make the most of the options available and manage your tax position more effectively.”
2. Factor in your State Pension: “A full State Pension uses up over 99% personal allowance, which means there may be very little tax-free headroom left for other income. As a result, additional withdrawals from a private pension could be taxed from the first pound. It’s an important point that can easily be overlooked when planning retirement income. Factoring this in early can help avoid unexpected tax bills later on.”
3. Don’t take it all at once: “Withdrawing your entire pension pot in one go is often the most expensive option from a tax perspective. While it can be tempting to take control of the money straight away, doing so can push much of it into higher-rate tax. In many cases, taking withdrawals gradually over time can reduce the total tax paid. This approach can also provide more flexibility as circumstances change.”
4. Use your tax-free cash carefully: “Up to 25% of your pension can usually be taken tax-free, but that doesn’t mean it all needs to be taken upfront. Phasing tax-free cash alongside taxable withdrawals can help smooth out your overall tax position. This can be particularly helpful for managing income across different years. Taking a more gradual approach often helps people make the most of what they’ve built up.
5. Pause and check before you act: “Decisions about pensions can be difficult to reverse, so it’s worth taking a moment to check the implications before making a withdrawal. Fully withdrawing may also restrict your ability to save into your pension in the future due to the money purchase annual allowance (MPAA) which reduces your allowance if you start taking taxable income from your pension. A quick calculation or a conversation with a specialist can help you understand the potential tax impact. This doesn’t need to be complicated, but it can make a real difference.
6. Consider guidance or advice before making decisions: “Pension decisions can have significant long-term implications, and taking all your pension at once could leave you financially vulnerable, especially if you rely solely on the state pension. It’s therefore worth taking the time to understand your options before making a withdrawal. If possible, full financial advice can provide a more personalised view based on your circumstances and help you weigh up the trade-offs. There are also free sources of guidance available, such as the government’s Pension Wise service, which can help explain how pensions work and what to think about before accessing your savings.”

Notes to editors

¹ Retirement income market data 2024/25 | FCA
² Calculated using Which’s tax calculator Income tax calculator and salary calculator Figures rounded to nearest £100. 
³ Rates of income tax differ in Scotland 

About Standard Life

Standard Life is a retirement specialist focused entirely on retirement saving and income. We are proud to manage around c£317bn in assets on behalf of our 12 million customers, and we champion the belief that everyone's journey to and through retirement can be better.

With our focus entirely on retirement savings and income we want to be the business that people trust to guide their retirement journey, helping our customers achieve better outcomes and greater financial security in later life.

As a FTSE 100-listed group we are using our size, expertise and influence to shape the world our customers will retire into, and are committed to helping three million more customers by 2035, take action towards a better retirement.

Standard Life is a responsible investor with a clear commitment to supporting a more sustainable future. The Group has achieved its net zero goal across its emissions for 2025 and is working towards net zero investment portfolios by 2050 or sooner.

Standard Life is recognised as a leading employer, with long-standing accreditation as a Living Wage Employer, Living Pension Employer and Carer Positive Exemplary Employer and in 2025 became one of Britain’s Most Admired Companies in 2025.