Record £2.3bn taken from pensions in Q2

Around 264,000 people withdrew an average £3,950 from their pensions between April and June.

Over the past year, around 375,000 people have withdrawn a total of £6.65bn.

However financial advice firm NFU Mutual believes more people may have inadvertently triggered a rule that severely restricts the amount they and their employers can contribute in the future.

Sean McCann, chartered financial planner at NFU Mutual, said: “Many people will not be aware that taking money from their pension will restrict the amount they and their employer can pay into their pension to a maximum of £4,000 each tax year. People who are still working are particularly at risk of missing out on valuable employer contributions

“From age 55, most personal pensions allow you to take a quarter of the pension pot tax free with the rest subject to income tax. Taking even a penny of the taxable amount will severely restrict any future pension savings.

“Anyone without an up-to-date tax code is likely to get stung with an ‘emergency’ tax rate which could mean paying thousands of pounds too much tax. Overpayments can be reclaimed by filling out a form but it’s up to individuals or their financial advisers to check and make a claim if necessary.

“Just because you can take make flexible withdrawals from a pension, doesn’t mean it’s always the best thing for your money. The tax treatment of pensions is unparalleled with triple protection on income, capital gains and inheritance tax. Making a withdrawal to then put the money in a building society account or ISA is playing into the hands of the taxman.”