Pensioners are being hit with tax bills of nearly £100,000 as a result of taking their pension in cash, analysis revealed.

More than 220 pensioners fully withdrew a pot of more than £250,000 between October 2022 and March 2023, attracting a bill of at least £97,500 each.

Those withdrawing cash now would pay a higher tax bill, after Chancellor Jeremy Hunt reduced the threshold at which taxpayers begin paying the additional 45pc rate from £150,000 to £125,140 in April 2023.

Those cashing in more than £250,000 now would pay at least £98,700 each – an increase of 1.23pc. This would mean a take-home income of £151,300, for someone cashing in exactly £250,000.

Another 1,537 pensioners took out between £100,000 and £249,000 in the time frame and will have paid at least £27,400 to the taxman, according to analysis of Financial Conduct Authority (FCA) figures by Standard Life.

HM Revenue & Customs (HMRC) taxes anything above the 25pc tax-free limit as income. The amount of tax paid on the remaining 75pc depends on how much is taken in one go and whether a pensioner has income from any other sources, such as rental properties or from continuing work.

Mike Ambery, retirement savings director at insurer Standard Life, said: “There are hundreds of people out there paying huge amounts of tax to access their pension.

“It’s important to remember that most pension income is eligible for tax, like other income. Fully encashing a large pot will almost always mean a very large tax bill, sometimes taking away many years’ worth of savings,” he said.

Tom Selby, of investment platform AJ Bell, added: “Taking six-figure chunks of cash out of your pension is rarely a good idea, particularly when that cash is subject to income tax.

“Most obviously, you will land yourself with a tax bill running into tens of thousands of pounds that could be reduced by drip-feeding your withdrawals over time.

“What’s more, if you withdraw the cash and shove it straight in a bank account, you run the risk of the value of your money being eaten away by inflation over the long-term.”

It comes after Prime Minister Rishi Sunak announced last week that the Conservatives would ensure that no pensioner paid income tax on the full new state pension.

As a result of the frozen tax-free personal allowance threshold, which will be £12,570 until 2028, the state pension – which leapt above £11,000 this year as a result of the triple lock – has been threatening to overtake the tax relief offered.

This could land some of the poorest retirees with income tax bills.

The Conservatives said they would introduce a higher personal allowance for pensioners.

Rishi Sunak last week said the move “demonstrates we are on the side of pensioners”, and would bring people “peace of mind and security in retirement”.

But experts said that the proposals had been subject to numerical errors and that it could put the effective tax rate up for wealthier pensioners.

The party said that no pensioners would be made worse off by its proposals.

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