Over half (57%) of pensions accessed for the first time in the 2022/23 financial year were fully withdrawn, NFU Mutual has found.

Analysis of information disclosed by the Financial Conduct Authority (FCA) showed that of the 739,535 pensions accessed for the first time, 420,727 were fully withdrawn, which is a 23% increase on 2020/21.

Although the majority of these full withdrawals were for smaller pots with less than £10,000 in them, there were 17,869 full withdrawals of pensions over £50,000.

NFU Mutual warned that nearly three quarters of these withdrawals were taken without seeking financial advice, leaving those people at risk of paying more tax than they need to.

This compares to 61% in the previous financial year, which the financial advice firm stated underlines "the scale of the issue".

Chartered financial planner at NFU Mutual, Sean McCann, said: "Fully withdrawing a pension can spark an unnecessary tax bill and leave retirees with limited funds for the future.

"Although almost 280,000 of these full withdrawals were for smaller pots with less than £10,000 in them, there are still thousands of people cashing in pensions worth significant sums.

"Cashing in pension pots of more than £50,000 will push many into the 40% or 45% income tax band and leave them with a large tax bill they weren’t expecting. In many cases the tax bill can be reduced by phasing withdrawals over a number of years."

The FCA data revealed that more than half of those taking income drawdown withdrew 6% or more from their pot in 2022/23. NFU Mutual warned this could erode their retirement pots quicker than planned.

Furthermore, just 8% of people accessing their pension for the first time in 2022/23 did so to buy an annuity. With gilt yields pushing annuity rates to their highest levels for years, this figure is predicted to climb even higher.

McCann added: "Drawdown has been more popular than buying an annuity for many years due to low interest rates, but they are making a comeback following recent rate rises.

"The main benefit of an annuity is that it can provide a guaranteed level of income of life. Many more people will now be looking at using some of their pension fund to buy an annuity while leaving the remainder invested and taking variable income or lump sums through income drawdown."

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