Millions of savers are being urged to protect themselves after sweeping HMRC tax changes that could add approximately £34,000 to the average bill for affected households. Thousands more estates will be pulled into paying inheritance tax for the first time.
The warning comes amid mounting concern that confusion surrounding the shake-up is being exploited by fraudsters targeting retirement savings. Research by Standard Life indicates anxiety is already rife, with more than half of adults (54%) fearing their loved ones will face a heftier tax bill upon their death, while 22% say the changes have left them feeling less confident about their pensions.
What is changing?
From April 2027, unused defined contribution pensions will be counted as part of your estate for inheritance tax purposes - a major shift from the current system. That means estates surpassing tax-free thresholds will be hit with a 40% inheritance tax charge. Approximately 10,500 estates will pay inheritance tax for the first time, and an additional 38,500 will see their bills increase by £34,000 on average.
Despite this, the majority of estates will still remain below the threshold, though the proportion paying inheritance tax is projected to double from 5% to roughly 10% by the decade's end. Defined benefit pensions, typically paid to a surviving spouse or civil partner, will remain unaffected by the changes.
Rush to withdraw funds
The impending reforms are already influencing behaviour. Figures reveal savers withdrew £3.9bn from pensions in lump sums during the year following the announcement - up £868m on the previous period. Separate research from Which? revealed that one in seven people are already spending more of their pension, and nearly half intend to do so in future.
Experts caution that this spike in withdrawals, coupled with uncertainty, is creating ideal conditions for scams.
The four warning signs of a pension scam
- Cold contact: Unexpected calls, texts or emails about pensions should ring alarm bells - even though cold-calling has been banned.
- Unfamiliar firms: Always check credentials via the Financial Conduct Authority register rather than trusting what you’re told.
- Promises of early access: Offers to unlock pensions before age 55 (rising to 57 from 2028) are a classic red flag and can trigger hefty tax penalties.
- Pressure to act fast: Scammers often create urgency to stop you thinking things through or seeking advice.
Where to get help
Savers unsure about their options are urged to seek guidance from Pension Wise or a regulated financial adviser. Experts stress that while the changes sound alarming, they will not affect everyone - and rushing into decisions could prove costly.
Mike Ambery, retirement savings director at Standard Life, said: "It's understandable that many people are reassessing how their retirement savings are used and passed on. However, scammers thrive on fear and uncertainty – when people feel unsettled or rushed, they're more likely to fall victim to a scam."
He added: "For many people, their pension savings simply won’t be large enough to fall into inheritance tax at all - but fraudsters may still try to convince them they need to act urgently."
