OPINION: The media & government have a lot to answer for over pension withdrawals – let’s not repeat this mistake

The number of people taking money out of their pensions has massively increased over the past year or so, peaking before and after last year’s Autumn Budget.

Taking money out of your pension is not an issue in and of itself, but any significant increase should be a cause for concern, as it could indicate a panic response – and this is rarely in people’s best interests.

Many experts warned that the rampant speculation about pension taxation last year – and a failure by the government to stamp it out – could lead to people making rash decisions about their pensions, but FCA data has now proven that it did.

Its data shows a huge increase in the amount withdrawn, rising by 36% to £70.9bn in 2024/2025, up from £52.2bn the previous year. The number of pensions tapped into for the first time also jumped 8.6%.

This began ahead of the Budget, despite nothing concrete being announced.

After the Budget, where nothing was mentioned on pension taxation, thousands of people tried to cancel their withdrawals, leaning on broad cancellation rules that say customers can change their mind within 30 days.

Helpfully, it wasn’t at all clear whether these rules actually apply to pension withdrawals. That was only cleared up a few weeks ago by HMRC and the FCA – and it turns out that no, they don’t.

So, basically, thousands of people cashed in their pensions in a panic for absolutely nothing, tried to change their mind, and are now realising they can’t.

So, now what?

Taking your tax-free lump sum has irreversible consequences. It means you have less money in your pension to keep generating returns in a tax-free environment. The only other way to do that is through an ISA, but the £20,000 annual limit is very restrictive for most people.

So, you’ll have to find somewhere else to put that money which could either lead to paying tax on the returns, or generating lower returns (ie. putting the money into a savings account rather than investing it).

Any future pension withdrawals will be added to your income for tax purposes, too.

Many people are not really aware of these consequences, but the government and financial media are (or should be).

The media’s irresponsible stirring up of panic and the government’s failure to address it are both largely responsible for what happened last year.

We’re weeks out of the next Autumn Budget, and the rumour mill is already churning up old fears around pension tax.

This time around, it would be great if media frenzies around what might happen in the Budget are balanced with consideration for the wellbeing of the public.

The government should also shut down unnecessary speculation with a heavier hand, rather than reverting to its usual refusal to comment on rumours.

Doing so could literally save people thousands of pounds, at a time where the government is concerned people don’t have enough money for later life.

Let’s not repeat last year’s debacle and push thousands more people into a worse retirement.