Almost 300 people fully encashed a pension of more than £250,000 after tax-free cash between October 2023 and March 2024, paying a minimum £98,700 each in tax in the process, according to new analysis of FCA figures by Standard Life.

That was 70 more than the 222 in the previous year between October 2022 and March 2023, according to the figures.

On top of the 292 who cashed in a quarter of a million retirement pot, a further 1,593 people fully encashed between £100,000 and £249,000, leading to a tax bill of at least £27,400 each.

That figure climbed by 56 compared to the same six months between October 2022 and March 2023.

Someone fully withdrawing a pot of £174,500, the middle point of the range, would pay a minimum of £64,700 in tax, Standard Life calculated.

The retirement specialist, owned by Phoenix Group, pointed out that anyone fully encashing larger pots between October 2023 and March 2024 would have experienced an increase in tax compared to 2022/23, because the threshold for additional rate tax being had been lowered from £150,000 to £125,140 from April 2023.

The firm said that mean those encashing pots of £250,000 paid an additional £1,200 in tax.

The figures only take the pension into account – people with other sources of income at the time of withdrawal would pay even more tax, Standard Life warned. That is because when people fully encash their pension, HMRC taxes anything above their 25% tax free pension cash as income, so it’s taxed like an ongoing salary.  

Tax on fully encashed pension pots, after tax-free cash*

*Figures rounded to nearest £100            

Mike Ambery, retirement savings director at Standard Life, said: “A huge number of people are paying a disproportionate amount of tax to access their pension. It’s impossible to know whether their individual circumstances warranted them taking such a big tax hit, but for the vast majority of people it’s something they’ll want to avoid.”

He pointed out that most pension income is eligible for tax, like other income. “Fully encashing a large pot will almost always mean a very large tax bill, sometimes taking away many years’ worth of savings. While some people want to withdraw their entire pension and put it in their bank account for ease of access, this can be financially detrimental.”

He said it’s worth considering a combination of flexible and guaranteed income. “Be sure to speak to your pension provider about your options, and ideally seek advice or guidance when taking your pension.”