Pension Payments: Why Thousands of Ukrainians Are Rushing to Withdraw Their Money.

According to The Sun: Against the backdrop of anticipated changes in the budget, the number of applications for withdrawing pension savings has increased significantly. In 2024/25, the volume of pension withdrawals increased by 36%, as many people try to protect their money from possible restrictions on tax-free access.

Currently, one can withdraw up to 25% of the pension accumulation value without paying taxes, which amounts to a maximum of £268,275.

Experts warn that withdrawing funds from a pension account can have serious consequences for future retirement savings. HMRC and FCA have provided important information about the possibility of canceling withdrawals.

“Once lump sums are paid, the associated tax consequences (including the use of the individual’s lump sum allowance and lump sum death benefit allowance) cannot be undone, even if the payment is returned or cancellation rights are exercised.”

Typically, when obtaining financial products included in FCA rules, it is possible to cancel the transaction within 30 days. However, these rules do not apply to pension fund withdrawals.

Although HMRC does not provide a 30-day cooling-off period, some pension schemes may allow clients to cancel contributions under certain conditions.

What types of pensions exist?

Here are the main types of pensions:

• Personal pension or self-invested personal pension (SIPP) – the most flexible type of pension, allowing the choice of provider and the volume of investments.
• Workplace pension – by law, the employer is required to automatically enroll the employee in a pension scheme unless they opt out. The minimum contributions are 8% (employee – 5%, 1% in tax relief, and employer – 3%).
• Final salary pension – forms payments based on salary and is fixed in the contract.
• New state pension – paid to individuals who reach pension age after April 6, 2016, with a maximum payment of £203.85 per week.
• Basic state pension – paid to those who reached pension age before April 2016.

“Our rules do not prevent a pension provider from choosing to offer cancellation rights in their contracts in additional circumstances beyond those set out in our rules.”

HMRC emphasized that once the payment is made, the tax consequences of withdrawal cannot be reversed, even if an attempt to cancel the withdrawal is made. For example, if you withdraw £20,000 and then cancel it, that amount still counts towards your 25% limit.

Why are investors trying to withdraw funds from their pensions?

Experts believe that concerns about the budget and rumors of possible changes are prompting people to withdraw money from their pensions. However, it is still unknown what decisions the Chancellor will make during the budget on November 26.

Among the proposed initiatives is a possible reduction of the tax-free withdrawal limit.

Experts warn that spontaneous actions in response to budget rumors can significantly affect pension savings. Jamie Jenkins, Director of Policy at Royal London, noted: “Some people may still be saving for retirement, but withdrawing 25% tax-free today could be less beneficial than if they left that money for investment for further growth.”

Philip Lewis, Head of Financial Planning at Evelyn Partners, also warned about possible tax consequences of withdrawal: “Any dividends earned from this amount may be subject to taxation.”

He recommends that investors withdrawing the tax-free portion have a clear purpose for the funds received, such as paying off a mortgage or providing financial support to family.

Always consult a financial advisor before making decisions about your pension.

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Thus, the increase in applications for withdrawing pension savings is caused by the danger of possible changes to tax policy. Such actions can significantly impact the pension savings of the population. It is important to approach such decisions thoughtfully, considering the potential consequences. Consulting with a financial expert can help avoid mistakes in future financial planning.