Huge tax sting for big pension withdrawals

RETIREES are being warned to plan their pension withdrawals carefully or risk tax bills that could run into tens of thousands, or in some cases, hundreds of thousands of pounds.

- By Harvey Jones

HMRC treats anything above the 25% tax-free lump sum as income, which is added to your earnings from all sources for the year and taxed accordingly.

Since 2015’s pension freedom reforms, the over55s have been free to use their retirement pots like cash machines. While most draw modest sums, others go much further.

Nearly 300 fully encashed pension pots of £250,000 or more in the six months to March 2024, according to new analysis by pension provider Standard Life. Each faced a minimum tax bill of £98,700 — and often more.

Almost 1,600 people cashed in pots worth between £100,000 and £249,000 in the same period, landing tax bills of at least £27,400 each.