By James Rodger

Copyright birminghammail

Pension savers urged to avoid major pitfalls as retirement plans could ‘backfire’ . Savers withdrew funds at unprecedented levels during the 2024/25 financial year, with total withdrawals jumping 36 per cent compared to the previous period. Philip Lewis, Head of Financial Planning Advice at Evelyn Partners, says: “Gradual annual increases in the overall amounts taken from pensions are to be expected as the population ages and more defined contribution pension holders reach retirement, but other factors are definitely at play with the recent growth in withdrawals.” Mr Lewis warned UK households over withdrawing the 25 per cent tax-free pension commencement lump sum without careful planning. READ MORE UK national speed limit could be slashed in ‘half’ with all drivers warned “Taking tax-free cash too early or without careful consideration might end up coming back to bite you tax-wise and could also undermine retirement plans,” he explained, in a warning for UK savers nationwide. “Simply taking a large amount of money out of a tax-protected environment and moving it into a taxable one can backfire even if the pension withdrawal itself is tax-free.” And remember pension recycling rules prevent savers from claiming tax relief twice on the same funds. “The good news is that just taking the PCLS does not reduce the amount a saver can pay into their pension each year with tax relief, as the ‘money purchase annual allowance’ (MPAA) is not triggered,” Mr Lewis said. He warned that “HMRC will be watching out for large or increased pension contributions by those who have just taken their TFC.” The money purchase annual allowance severely limits future pension-building capacity, Mr Lewis added. “How you access your pension is crucial,” Mr Lewis said. “If you access your pension flexibly or take taxable amounts then you risk triggering the MPAA which will limit future contributions to £10,000 a year and could hamper your ability to rebuild your pension pot.”