Under‑65s pull £75.5bn from pensions since 2015
Since the 2015 pension freedoms were introduced, under‑65s have withdrawn £75.5 billion in taxable pension payments, according to a new analysis of HMRC data.
Early withdrawals dominate the taxable pension setting
The study, conducted by the consultancy Lumera, shows that 2.4 million people accessed a taxable pension payment before reaching 65, representing 70 percent of all savers who have taken such withdrawals. In total, £124.7 billion has been taken from pensions as flexible taxable payments since the reforms, with the under‑65 cohort accounting for £75.5 billion, or 61 percent of the total.
These figures exclude the tax‑free lump sum that many retirees receive, highlighting the scale of early access to retirement savings. The number of under‑65s taking a taxable pension payment rose by 7 percent to 644,000 between the 2024/25 and 2025/26 tax years, while the value of those payments increased from £10.3 billion to £11.4 billion.
Tax implications and potential pitfalls
Under the pension freedoms, up to 25 percent of a pension pot can be taken tax‑free. Any amount beyond that is added to the recipient’s taxable income, potentially pushing savers into a higher tax bracket. Flexible withdrawals can also trigger the Money Purchase Annual Allowance, lowering the annual tax‑relievable defined contribution (DC) pension allowance from £60,000 to £10,000 for those who continue working and saving.
Peter Roos, Lumera’s chief commercial officer, warned that “the concern is not necessarily that people are accessing their pensions before 65 – for many, doing so will be entirely appropriate – but whether they fully understand the tax implications and the potential impact on their longer‑term retirement income.” He noted that early withdrawals sacrifice investment growth, leaving a smaller pot to support potentially several decades of retirement.
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Guided Retirement and Targeted Support initiatives could help savers manage these choices. Roos said providers would need to leverage data at scale to assign members to default pathways or offer targeted guidance at the point of access, helping avoid unintended tax consequences and aligning decisions with long‑term needs.
From a practical standpoint, the trend suggests many people are tapping into retirement funds while still in the workforce, which could limit their ability to build wealth for later years. Those who withdraw early may find themselves with reduced flexibility when they finally retire, especially if their remaining savings are insufficient to cover living costs.
Gender gap and broader context
The analysis also highlighted a stark gender divide. Men have withdrawn £94.19 billion, roughly three times the amount taken by women. Lumera’s Loos attributed this disparity to broader differences in pension wealth and retirement savings between the sexes, highlighting the need for support mechanisms that address varied financial circumstances.
While the pension freedoms were designed to give individuals more control over their retirement assets, the data suggests a significant portion of younger savers are choosing to access funds early, often without full awareness of the long‑term ramifications. As the number of under‑65 withdrawals continues to rise, policymakers and industry stakeholders may need to consider additional guidance to ensure retirees can sustain adequate income throughout their later years.
