Having done this, ensure that your pension provider has up-to-date tax information before taking larger sums.

More importantly, think carefully about spreading withdrawals across multiple tax years to reduce the overall tax burden.

Ms Allen added: “Some people may choose to withdraw pension funds gradually, particularly if they can keep their total income below the higher-rate threshold, so they pay only 20pc tax.”

You’ll miss out on investment growth

Making a significant pension withdrawal could affect your future wealth more than you think as you would not only lose the withdrawn sum, but also years of potential investment growth.

Sarah Coles, the head of personal finance at AJ Bell, said: “If you have a £100,000 pension at the age of 55 and it grows at 5pc a year, that could be worth £164,701 by the age of 65, so taking it earlier means missing out on a significant chunk of money.”

Moving money out of a pension also isn’t going to do you any favours if you don’t have a plan for it.

Ms Allen said: “Psychologically, having a pension provides a clear ‘pot’ earmarked for later life; cashing it in can create a false sense of wealth that leads to overspending. While there is an argument that it is better to enjoy your money than hand it to HMRC, once the pot is spent, it cannot be replaced.”

Even if you don’t spend the money, leaving it in cash in your bank account or a savings account is not the best move.

Ms Coles added: “There’s a real risk it loses spending power after inflation, so instead of growing, your money is actually shrinking.”

Minimise the damage

Withdraw only what you need for specific purposes, as opposed to taking the maximum available.

Ms O’Connor said: “Many retirees aim to follow a sustainable withdrawal rate of around 3pc to 4pc of their pension annually, although the appropriate level will depend on individual circumstances.”

If you do want to set aside a withdrawal for emergencies, make sure you don’t get taxed on it unnecessarily.

Ms Allen said: “Pensions are still one of the best places for money to grow, tax-free. But if you do take money out of this environment, be sure to make use of other tax-efficient vehicles available to you, such as Isas, which still allow tax-free growth. Investment bonds are another effective shelter.”

You could restrict further pension contributions

If you access taxable pension income, there’s a risk you may trigger the Money Purchase Annual Allowance (MPAA). This significantly reduces the amount that can be paid into defined-contribution pensions in the future while still attracting tax relief. While most people can pay up to £60,000 per year (or the equivalent of their annual salary, whichever is lower), once the MPAA is triggered, this limit drops to £10,000.

What’s more, you won’t be able to carry forward unused pension contributions from previous tax years either.