Hundreds of thousands of people under 65 accessed taxable pension cash last year, but withdrawals can trigger an important £10,000 savings limit. New analysis of HM Revenue and Customs (HMRC) figures found 644,000 people under 65 took taxable flexible pension payments during the 2025/26 financial year.
The number increased by seven per cent from 602,000 the previous year, while the amount withdrawn rose by £1.1billion from £10.3bn to £11.4bn. Analysis by pension technology company Lumera also found 2.4 million people have first accessed taxable flexible pension payments while under 65 since the pension freedoms were introduced in 2015.
Seven in 10 savers affected
This represents seven in 10 of the 3.42 million pension savers who have taken taxable flexible payments during that period. Altogether, people who first accessed their pensions before 65 have received £75.5bn in taxable flexible pension payments since 2015. The figures do not include tax-free lump sums.
HMRC's latest private pension statistics were published on July 30 and include data on taxable flexible pension payments.
£10,000 pension limit
Taking taxable money flexibly from a defined contribution pension can have an important consequence for people who are still working and continuing to save for retirement. It can trigger the Money Purchase Annual Allowance (MPAA).
The standard pension annual allowance is currently £60,000, although some people have a lower allowance because of their individual circumstances. However, once the MPAA has been triggered, the amount that can subsequently be paid into defined contribution pensions while benefiting from tax relief can be restricted to £10,000 each tax year. The £10,000 includes contributions made by both the individual and their employer.
Unused MPAA also cannot be carried forward from previous tax years to increase that £10,000 limit. This could be particularly important for someone who accesses pension savings while still employed and intends to continue building their retirement pot.
When does the £10,000 limit apply?
Not every pension withdrawal will trigger the Money Purchase Annual Allowance. According to MoneyHelper, it will normally be triggered when someone takes taxable money flexibly from a defined contribution pension.
This can include taking a series of lump sums, receiving flexible income through pension drawdown or taking an entire pension pot in one go, although there are exceptions for certain small pension pots. Simply taking up to 25 per cent of a pension as tax-free cash and leaving the remainder invested will usually not trigger the MPAA.
Taking money from a defined benefit pension also does not usually trigger it. People considering accessing a pension should therefore check how their chosen method could affect their ability to make pension contributions in the future.
Pension withdrawals could increase your Income Tax
There is another potential consequence for people accessing pension savings while they are still earning. While people can usually take up to 25 per cent of their pension tax-free, further withdrawals will normally count as taxable income.
That income is added to someone's other taxable income for the year, meaning a substantial pension withdrawal could result in more of their income falling into a higher Income Tax band. This is particularly relevant to people in Scotland because Scottish Income Tax rates and bands apply to pension income.
For the 2026/27 tax year, Scottish taxpayers pay 19, 20, 21, 42, 45 or 48 per cent on different portions of taxable earnings and pension income, depending on their circumstances.
Early pension access rises
Peter Roos, Chief Commercial Officer at Lumera, said accessing pension savings before 65 was not necessarily a cause for concern in itself. He said: “Pension freedoms have given millions of people much greater flexibility over how and when they use their retirement savings but accessing a pension early can have important and sometimes overlooked consequences.
“The concern is not necessarily that people are accessing their pensions before 65 - for many, doing so will be entirely appropriate - but whether they fully understand the tax implications and the potential impact on their longer-term retirement income. “Taking money out earlier also means losing the potential investment growth on those savings and leaving a smaller pot to support what could be several decades in retirement.”
Men have withdrawn three times as much as women
The analysis also identified a substantial difference between the amounts withdrawn by men and women since pension freedoms were introduced. Men have received £94.19bn in taxable flexible pension payments compared with £30.28bn withdrawn by women.
Men accounted for 64 per cent of the 3.42 million people who accessed taxable flexible pension payments, but 76 per cent of the total amount withdrawn. Mr Roos said the difference was likely to reflect, at least partly, wider differences in pension wealth and retirement savings between men and women.
People aged 50 and over with a UK defined contribution pension can also get a free Pension Wise appointment through MoneyHelper to discuss their options before accessing their pension.
