Concerns over the future of the pension tax-free lump sum may have prompted some savers to access their pots earlier than planned, with 76 per cent of people aged 55 to 64 having already taken a pension lump sum, research from AJ Bell has found.

AJ Bell analysis of Financial Conduct Authority (FCA) data found that speculation ahead of the past two Budgets had led consumers to withdraw an estimated £14bn more from their pensions in 2025/26 than would otherwise have been expected, following an estimated £10bn increase the previous year.

AJ Bell's research also found that 23 per cent of retirees who were no longer working said they took their first pension payment while still in employment.

Of those who had accessed a pension lump sum, only 30 per cent said they used the first payment to cover living costs.

Instead, 26 per cent used the money for home improvements, 21 per cent spent it on a holiday, 19 per cent paid off debt and 16 per cent bought a new car.

The research also found that 41 per cent of respondents believed they had managed their pension well so far, while 38 per cent said they had not.

AJ Bell head of personal finance, Sarah Coles, said: “The tax-free lump sum is everyone’s favourite part of the pension.

“People with little or no interest in pensions overall hit the age of 55 and realise they can get their hands on tens of thousands of pounds overnight. They can suddenly buy things they have always wanted, from cars to holidays and home improvements.

“However, there’s a risk some of them are doing so without considering the impact on their overall retirement income.”

Once a pension saver reaches age 55, rising to 57 in 2028, they can in most cases take 25 per cent of their pension tax-free as a pension commencement lump sum.

Coles said that while the vast majority of consumers take the money, this research “rings alarm bells over” how they’re doing it, and what they’re spending the money on.

“There’s a risk that all of this could be exacerbated in the run up to the Budget," she continued.

"The last two Budgets sparked speculation over a potential raid on pensions tax-free cash."

Coles said the FCA data showing that people took an estimated £14bn more from their pension than they would have done without this speculation, “constitutes a horrible pensions raid which could seriously damage retirement incomes”.

She added: “The Pensions Commission found that 14.6 million people aren’t saving enough for retirement, but that this rises by 2 million if people take their tax-free cash and spend it.

“It’s why AJ Bell has called on Chancellor, John Healey, to commit to a Pension Tax Lock to avoid this damaging trend continuing.”

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