Holly covers personal finance topics from credit cards to wills. She enjoys turning complex money matters into clear, practical advice.
New data from the Financial Conduct Authority reveals people’s retirement choices, as more than 1m pensions were accessed for the first time in 2025-26.
Over £91bn was withdrawn from pensions in 2025-26 – up 21.7% from the previous year.
This is partly because more savers with defined contribution pensions (as opposed to defined benefit pensions) hit retirement age and have to decide how to turn their pot into a sustainable retirement income.
But experts are concerned that speculation around pension policy has caused a surge in withdrawals.
Here, we explore how people take their pension, and we explain what you need to know about your retirement choices.
401,137 pensions were moved into drawdown in 2025-26, according to the latest retirement income market data from the Financial Conduct Authority (FCA).
Drawdown is where you keep your pot invested but can withdraw money whenever you choose.
This approach now accounts for 38% of all pots accessed for the first time last year.
Drawdown sales have continued to rise after soaring in popularity in recent years: the number of pensions accessed via drawdown has increased by 10.5% since 2025-26.
While nearly half of all pensions accessed for the first time last year were fully cashed in, making it the most popular method of accessing a pension ahead of drawdown, the majority of these pots contained less than £10,000.
This chart shows the number of pensions accessed for the first time, by the method of access since 2021-22.
Source: Financial Conduct Authority. Encashments includes those fully cashing in their pension via small pot lump sum, drawdown or uncrystallised funds pension lump sums (UFPLS).
The flexibility of drawdown is clearly a huge draw for savers: you can take money from your pension as and when you need it. That leaves the rest invested, with the potential for it to benefit from further growth.
The flip side is that you risk running out of money if you take too much from your pension or if your investments underperform. And the FCA data shows that many could be at risk of draining their pots faster than intended.
320,762 pensions – around half of all those in drawdown – were accessed at an annual rate of over 8%, according to the latest FCA figures. To put these figures into context, 4% is often cited as a safe withdrawal rate if you want your pension to last around 30 years.
Fears around inheritance tax could be partly to blame: more than half of respondents in a recent Which? survey said they plan to spend more of their pension in anticipation of the changes.
But making your pension last through retirement requires careful consideration: the right rate for you will depend on a range of factors, including your investment strategy, the size of your pension pot, how long you expect to live and whether you have any other sources of income.
And it's important to leave a buffer for unexpected costs, such as later-life care.
You can use our drawdown calculator to get an idea of how long your savings might last.
Whether you’re unsure if you have enough to retire, or are already accessing your savings, our money guidance service can talk you through your options. Which? Money members get unlimited access to them via phone.
Find out moreAround £22bn was taken from pensions in tax-free cash in 2025-26, according to the FCA’s figures, up 21% on 2024-25.
The amount withdrawn as tax-free cash has surged in recent years, amid speculation that the pension commencement lump sum could be scrapped or capped – a decision many have come to regret.
According to analysis by wealth management firm Evelyn Partners, more than £40bn was taken in tax-free lump sums between April 2024 and March 2026 – more than double the amount taken in the two years prior.
But you should think carefully before taking cash from your pension, especially if you don’t have a plan for how you’ll use the money.
Leaving your pension invested gives it the chance to grow. As your pension grows, so does the amount you can take as tax-free cash.
And you could end up with a tax bill if you put the money into a savings account or invest it elsewhere and exceed your personal savings and Isa allowances.
You should be careful not to breach HMRC's pension recycling rules, designed to stop people re-investing tax-free cash into their pension to get extra tax relief. Breaking these rules can result in tax charges of up to 55% on your lump sum.
While drawdown remains the most popular way to take regular pension income, demand for annuities is on the up, as consistently high gilt yields have pushed up rates.
Annuity sales jumped 13% on the previous year to 100,144 according to the FCA’s data – making up 10% of all the pensions accessed for the first time.
Annuity rates have improved considerably in recent years and reached record highs in the past few weeks. Today, a 65-year-old with a £100,000 pension could get over £8,000 a year, compared with less than £5,000 five years ago, according to Hargreaves Lansdown.
Buying an annuity removes the uncertainty from retirement planning, as you know exactly how much income you’ll get from your pension each year, and for how long.
But it's an irreversible decision, so you should take time to carefully consider your options, the types of annuity available and to shop around for the best rates.
Select the option that best describes your current situation.
