Around 19 per cent of those retiring this year are planning to withdraw more than the 25 per cent tax-free limit from their pension, according to research from Prudential.
The figures come from a survey 1,000 adults who are planning to retire this year and found that a total of 44 percent seek to withdraw at least some cash from their pension savings.
Under the pension freedoms reforms, most pension savers over the age of 55 are entitled to take some or all of their pension savings in the form of a cash lump sum, with the first 25 per cent being tax-free.
The research shows that the most popular use of the cash is holidays (34 per cent), followed by home improvements 24 per cent, followed by gifting cash to children or grandchildren and paying off mortgages, both at 18 percent.
Treasury data released as part of the Spring Budget shows that the amount of cash being taken from pension funds is higher than expected when the freedoms were first announced.
It was initially estimated that the changes would mean a total of £900m of extra tax being paid in the tax years 2015-16 and 2016-17. In fact, a total of £2.6bn in extra tax is now expected to be paid in the two years to 6 April 2017.
Graeme Mitchell, managing director at Lowland Financial, said in his experience around one in 25 want to withdraw all of their pension as cash, but that after advice all change their minds.
He says that at the very least it would be advisable to take income drawdown over a two to three year period to avoid a tax penalty or to puchase a temporary annuity.
"If you are 60 and you have a pension pot of £80,000, by retirement age you have a State Pension or Final Salary Pension scheme kicking in," he said. "You could have a temporary annuity paying out £10,000 a year. That way you have got your money without tax."
