The number of people who fully withdrew pension pots of £250,000 or more was 292 between October 2023 and March 2024, an increase of 70 people compared to the same period a year earlier, according to analysis by Standard Life.

Standard Life’s analysis of the Financial Conduct Authority’s (FCA) Retirement Income Market Data also showed that each withdrawal resulted in a tax bill of at least £98,700, suggesting a lack of awareness of the tax consequences for fully withdrawing pensions.

The analysis also revealed that 1,593 people fully encashed a pot of between £100,000 and £249,000 between October 2023 and March 2024, 56 more than between October 2022 to March 2023, leading to a minimum £27,400 tax bill.

It suggested that an individual fully withdrawing a pot of £174,500, the middle point of that range, would pay a minimum of £64,700 in tax.

Standard Life explained that those fully encashing larger pots between October 2023 and March 2024 would have experienced an increase in tax compared to 2022/23 due to the threshold for additional rate tax being lowered from £150,000 to £125,140 from April 2023.

It also stated that these figures only take pension into account, as those with other sources of income at the time of withdrawal would pay more tax.

Commenting on the findings, Standard Life retirement savings director, Mike Ambery, said: “A huge number of people are paying a disproportionate amount of tax to access their pension.

“It’s impossible to know whether their individual circumstances warranted them taking such a big tax hit, but for the vast majority of people it’s something they’ll want to avoid.”

Ambery said that withdrawing the entire pension and putting it in a bank account for ‘ease of access’ can be “financially detrimental” as savings become eligible for tax and potentially giving up investment returns.

In response to the FCA data, Quilter head of retirement policy, Jon Greer, said it revealed a “significant” shift in pension access and withdrawals, reflecting ongoing economic pressures and evolving strategies within retirement planning.

With the data showing that the total number of pension plans accessed for the first time surged by 19.7 per cent, reaching 885,455 compared to 739,652 in 2022/23, Greer suggests that more individuals are turning to their pensions to manage their financial needs.

He added that this was likely influenced by the cost-of-living crisis forcing people to dip into their pension pots to supplement other forms of income.

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