More savers are taking their pensions in one go – should you?

The number of pensions being fully cashed in has risen by 100,000 compared with seven years ago, according to the latest data from the Financial Conduct Authority (FCA).

In the 2024-25 tax year, just over 462,000 pensions were withdrawn in full, compared with just over 357,000 in 2018-19 – an increase of 29%. 

Here we explain how and when you can access your pension, and what to consider before withdrawing your retirement pot in one go. 

Why are retirees cashing out in full?

While FCA data (see table below) shows an upward trend in the total number of pensions being fully cashed out, most of these are relatively low in value.

More than 300,000 pension pots withdrawn in full in 2024-25 were worth less than £10,000, and a further 112,526 were worth between £10,000 and £29,000.

Across age brackets, there has been a 75% increase in the number of 65 to 74-year-olds withdrawing their pensions in full between 2018 and 2025. For those aged 55 to 64, the rate at which pensions were withdrawn in full rose by 15% over the same period.

TPT Retirement Solutions, a workplace pension provider, said the data suggests that people haven't saved enough to offer a meaningful income through pension drawdown.

Its DC proposition associate director, Georgie Edwards, said the data ‘highlights the need for better guidance so retirees don’t erode their savings – or pay more tax than they need to’.

• Find out more: how much will I need to retire?

When can you take your pension?

The earliest you can access your pension is usually age 55, rising to 57 from April 2028, though you may be able to do so earlier if you are in poor health. 

You have various options for taking money from a defined contribution pension, including:

• buying an annuity
• moving it into drawdown (where it stays invested and you take money as you need to)
• taking some or all of it as cash.

Take charge of your retirement planning

Check your retirement income plans are ready with the specialists at Destination Retirement

Get started

Which? earns a commission to fund its not-for-profit mission if you buy a product via this service

How much tax will you pay if you take your pension in one go?

However you access your pension, you can take up to 25% tax-free (up to a combined limit of £268,275 across all your pensions). 

Anything else you take will be taxed in the same way as other income. This means that taking your entire pension in one go can land you with a sizeable tax bill. 

For example, if you cash in a £30,000 pension, £7,500 will be tax-free, while the remaining £22,500 is taxable. 

Of this amount, £12,570 will be covered by your tax-free personal allowance (assuming you haven't already used it), leaving £9,930 on which tax is due. This means that if you're a higher-rate (40%) taxpayer, your bill will be £3,972.

• Find out more: use our pension tax calculator

What to consider before cashing in your pension

While freeing up a sizeable lump sum may allow you to meet immediate financial needs, withdrawing a pension in one go is a decision that needs careful consideration, especially if it's your main retirement pot: 

• The money typically can’t be put back If you change your mind and wish to pay money back into your pension, you could be hit with a penalty tax charge for breaching 'pension recycling' rules. 
• You could face a large tax bill You can take 25% of your pension tax-free, but the remaining 75% is taxed as income. Depending on how much you withdraw, you could be pushed into a higher tax bracket, leaving you with an even bigger tax bill. 
• You could run out of money Taking too much cash now could leave you financially vulnerable later on in retirement. 
• Your money could be eroded by inflation Leaving the money invested inside a pension gives it the potential to grow tax-free and keep pace with rising costs.
• Your benefits could be affected Taking money from your pension will increase your income or savings, which could affect any state benefits you’re entitled to claim.