Savers are racing to access their pensions years early to beat plans by Chancellor Rachel Reeves to hit unused retirement pots with inheritance tax from April next year.

Experts warn that making early pension withdrawals could prove a costly mistake as savers risk depleting their pot too soon, leaving nothing for later life.

Last year, 116,000 people withdrew lump sums from their pensions at the earliest possible age of 55, lifting withdrawals to a five-year high of £2.3 billion, according to Lubbock Fine Wealth Management.

The surge follows changes announced in Reeves's 2024 maiden Budget, which will bring unused direct contribution pensions, the type invested in the stock market, into the inheritance tax (IHT) net from April 2027.

That's triggered a scramble among some savers to pull money out early, said Andrew Tricker, chartered financial planner at Lubbock. "Many are rushing to take money out as soon as they can to help mitigate what they see as excessive tax bills for their dependents."

Yet some may be acting far too soon. "What is surprising is that this trend has spread to people who have decades left based on average life expectancy," he said.

Tricker expects the trend for early withdrawals to accelerate as we get closer to the start of the IHT tax grab, now less than one year away. "More people will tap into their pension pots, particularly those who can do so without creating a big tax liability."

Previously, many people deliberately built up their pensions, in the hope of passing them on to loved ones free of IHT. Many have now changed course, without fully thinking it through.

Once the 25% tax-free lump sum has been taken, further pension withdrawals are added to total earnings for the year and are subject to income tax. "It can make sense to keep funds within the pension and draw them down gradually."