Thousands of pension savers are reviewing their retirement plans after research suggested one in four people intend to withdraw tax-free cash before Labour's 2027 inheritance tax changes take effect. The study, based on 300 respondents for Hargreaves Lansdown, also found that more than a quarter plan to seek professional financial guidance before deciding their next move.
The reforms, due from April 2027, will for the first time include unused defined contribution pension pots within the scope of inheritance tax. The policy was originally revealed by former Chancellor Rachel Reeves and will be introduced under Andy Burnham's Labour government.
Savers act before April 2027 changes
According to the research, one in four savers plan to take tax-free cash from their pension and pass it on to relatives, aiming to reduce the value of their estate before the new regulations begin. Many had previously intended to leave pensions untouched so they could be passed down without inheritance tax implications.
Helen Morrissey, Head of Retirement Analysis at Hargreaves Lansdown, said the policy has prompted people to rethink those strategies.
"Before the change was announced, many people planned to spend down their other assets first and leave their pension for as long as they could, so it could be passed on to loved ones, free of inheritance tax," she said. "The change in the rules has since prompted people to think again and assess what can be done to reduce the value of the estate to save their family a tax bill."
Gifting and professional advice
One approach under consideration is making gifts while still alive, allowing families to benefit earlier and potentially reducing the size of the estate. Ms Morrissey suggested this could include helping with a house deposit, contributing to a wedding, or making regular payments into a Junior ISA for future education costs.
"It could be a one-off sum towards a house deposit or wedding, for instance, or regular contributions into a Junior ISA to help someone afford university further down the line," she said.
However, she cautioned against rushing into decisions purely to avoid tax.
"It's crucial not to give away too much, too soon. This risks potentially running out of money later on, which can pose serious challenges," she added.
The inheritance tax changes are expected to be one of the most significant overhauls to pension planning in years, with financial experts urging savers to review their retirement strategy before taking action. Experts stress that gifting should form part of a long-term financial plan rather than being driven solely by the impending rule changes.
