Retirees who fully withdrew pension pots worth £100,000 or more paid at least £87.2m in income tax over six months, up more than 20% year-on-year, according to Standard Life analysis of Financial Conduct Authority (FCA) data.

The analysis found 392 people fully encashed pension pots worth at least £250,000, each paying a minimum of £98,700 in tax, while a further 1,772 people withdrawing between £100,000 and £249,000 paid at least £27,400 each.

The figures cover October 2024 to March 2025 and show how large one-off withdrawals can push savers into higher tax bands.

Standard Life warned the actual tax bills could be significantly higher depending on individuals' wider income.

The findings come ahead of planned changes from April 2027 that will bring unused pension funds into the scope of inheritance tax (IHT), prompting some savers to consider accessing their pensions earlier despite the potential income tax implications.

Mike Ambery, retirement savings director at Standard Life, said: "Tax is becoming an increasingly important part of how people think about their pensions, particularly as inheritance tax changes loom. Taking a step back to understand the trade-offs can help people make decisions that are right for their circumstances and avoid unintended tax consequences. Ultimately, it’s about feeling confident in the choices you make, accessing financial advice or guidance if possible, and understanding how to use your pension in a way that fits your individual circumstances.”

A separate survey found that almost three-quarters of pension savers are unaware that unused pension pots are due to become subject to inheritance tax from next April.

The survey by workplace pension provider Penfold found 74% of savers did not know about the incoming reforms, which will bring unused pension funds into an individual's estate for inheritance tax purposes, suggesting many have yet to review their retirement and estate planning.

Most unused pension funds have generally fallen outside inheritance tax, but will now fall within it, and with the standard rate set at 40% on estates exceeding the £325,000 nil-rate band, the company said savers need to be aware of the changes soon to come.

Chris Eastwood, CEO of Penfold, said: "The new rules that are set to come into effect do reduce one of the major estate-planning advantages of pensions, but that being said, pensions remain one of the most tax-efficient ways to save for retirement.

“For the majority of savers, the possible impact will be limited as inheritance tax only applies where an estate exceeds relevant thresholds."

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