Experts have warned that thousands of households across the UK are re-examining their pension and estate planning ahead of a crucial Labour HMRC rule alteration that will eliminate the inheritance tax (IHT) exemption for pensions from April 2027 – and anyone who isn’t, should be. They caution there may be some uncertainty on how new taxes will be enforced, prompting many to take proactive measures to lower their future tax liabilities.
Spencer Churchill Claims Advice said recent research indicated more than half of Britons viewed their pension as an integral part of their estate strategy, with 23% acknowledging it plays a less significant role. However, they warn against hasty financial moves like withdrawing large amounts from pension funds, which may result in severe financial repercussions.
They noted: “Many people are understandably worried about how inheritance tax on pensions will be implemented, and some are looking to access their funds early before the changes take effect. While this might seem like a sensible strategy, it could trigger unintended financial consequences, such as higher income tax bills and reduced pension security in later life.
“Withdrawing a large lump sum could push retirees into a higher tax bracket, leading to an unnecessary tax hit. At the same time, drawing down too much too soon risks depleting savings, leaving individuals struggling to fund their later years.”
‘Plan now to avoid unnecessary inheritance tax’
Chancellor Rachel Reeves’ adjustments to inheritance tax on pensions are projected to rake in an additional £2.5 billion for HMRC by the 2029-30 financial year.
A spokesperson for Spencer Churchill Claims Advice implored pensioners to steer clear of rash actions: “A knee-jerk reaction to changing pension rules could do more harm than good. Instead of making hasty withdrawals, households should carefully plan their estate strategy to reduce inheritance tax liability while ensuring they retain enough pension savings for retirement.”
The experts urged UK retirees to meticulously reassess their retirement blueprints in light of the looming April 2027 deadline and to consider vital factors such as:
Tax efficiency – Rethink large withdrawals that might catapult you into a steeper tax bracket, leading to increased income tax dues.
Estate planning – Mull over the possibility of gifting pension savings, but be aware of stringent regulations, including a seven-year rule for tax break eligibility.
Alternative solutions – Trusts and savvy tax-forward investments may offer superior inheritance planning avenues.
Professional advice – Consulting with a financial planner is recommended to navigate towards the most tax-effective strategies without endangering your prospective income.
Confidence in the country’s pension framework is waning, the experts pointed out. They highlight survey results indicating that a staggering 44% of participants harbour scepticism towards pension stability, attributing their distrust to the frequent alternations in government policies.
They warned: “Frequent changes to pension taxation create uncertainty, making it harder for individuals to plan for their retirement with confidence. With pensions being a long-term investment, stability and clear guidance are crucial to ensuring people don’t make short-sighted decisions that could leave them financially vulnerable in later life.”
As the 2027 deadline looms, financial gurus are calling on pension savers to act swiftly to boost their nest eggs and avoid needless tax charges.
