People with pensions urged to avoid ‘knee-jerk’ mistake costing cash | Personal Finance | Finance

People with pension pots, especially  older savers, have been urged not to allow knee-jerk reactions to damage their retirement funds ahead of the autumn Budget. New data from the Financial Conduct Authority revealed a surge in people taking cash from their pensions before any tax changes are actually confirmed, in an attempt to shield their savings from rumoured problems.

During the 2024/2025 tax year, when numerous pension tax modifications were rumoured to be under consideration before Rachel Reeves‘ maiden Budget, pension withdrawals jumped by 36% from £52.2million to £70.9billion. The figure for pensions being accessed for the first time also climbed by 8.6% throughout this tax year. The pattern appeared to show that people were tapping into their funds based on speculation regarding potential changes to the tax-free lump sum permitted on pensions and inheritance tax reforms.

However, people were taking out their money before any chnages were actually confirmed, which experts caution could harm their retirement prospects. Eamonn Prendergast, Chartered Financial Adviser at Palantir Financial Planning Ltd, urged people against raiding their pension funds in a panic saying: “Fear and rumour are a terrible basis for retirement planning, yet speculation has been running unchecked since last year’s Budget.

“Even before the next Budget on 26 November was announced, months of uncertainty spooked savers into pulling £70bn from pensions. These pots are meant to last decades, not be raided in panic. Too often it’s those without guidance who make the costliest mistakes, leaving themselves worse off and more stressed.”

Prendergast implored the government to act swiftly and quash rumours early to provide savers with greater peace of mind, advising savers to seek “proper advice” and consider their long-term plan before making decisions based solely on “scare tactics”.

Laura Purkess, personal finance expert at Investing Insiders, added: “It’s no coincidence that the numbers began rising ahead of the last Budget amid rife speculation that the government was looking to scrap or cap pension tax-free lump sums, which is deeply concerning.

“People clearly shouldn’t be making big decisions about their finances based on speculation alone, as often those rumours don’t come to fruition, as was the case with fears about tax-free lump sums being cut. The government needs to get a grip on rumours circulating so far ahead of Budgets and address speculation that could damage people’s finances.

“For anyone thinking of making a decision about their finances in response to headlines or policy changes, consider speaking to a professional first. A financial adviser can help you work out what the best move is for you right now, and if there are any changes in the Budget, they will be able to act swiftly to ensure you are still in the best position.

“It’s also important to remember that most big policy changes announced in Budgets do not come into effect immediately. The best thing you can do at any time is to ensure your finances are in the best shape possible and not make rash decisions based on rumours or fears about the future.”

Scott Gallacher, Director at Rowley Turton, said the figures come as no surprise: “I’ve had several clients express real concern about the government’s current direction on pensions and tax. That said, in most cases people are best served by sitting tight.

“Historically, existing pension holders have generally been protected by transitional rules when changes are introduced, though sadly none of us has a crystal ball to guarantee that will always be the case.”