Thousands of pension savers are rethinking their retirement plans ahead of major inheritance tax changes that will bring most unused pension funds into the scope of the tax from April 2027.
The reforms mean most unused pension funds and certain pension death benefits will be included when calculating the value of a person's estate for inheritance tax purposes from April 6, 2027.
The changes are prompting some savers to consider withdrawing tax-free cash and giving money to family members while they are still alive.
One in four planning to gift cash
Research cited by Hargreaves Lansdown found that one in four people surveyed planned to withdraw tax-free cash from their pension and gift it to relatives in response to the reforms.
More than a quarter also said they intended to seek professional financial advice before deciding what to do.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the changes had caused people to reconsider plans to leave their pension untouched and pass it on to loved ones.
Options to reduce estate value
She said savers were now considering ways to reduce the value of their estate and potentially limit a future inheritance tax bill.
One option is making gifts during a person's lifetime, such as helping children or grandchildren with a house deposit, contributing towards wedding costs or making regular payments into a Junior ISA.
However, Ms Morrissey warned people against rushing to give away large amounts of money simply because of the upcoming tax changes.
Warning against giving too much
She said: "It's important not to give away too much, too quickly."
Giving away too much could leave someone without enough money to cover their own living costs later in retirement.
Under the reforms, most unused pension funds will be treated as part of the deceased person's estate for inheritance tax purposes. The changes apply to deaths on or after April 6, 2027.
Government estimates of impact
The Government has estimated that around 213,000 estates with inheritable pension wealth could be affected in 2027/28.
It expects around 10,500 estates to face an inheritance tax liability where they would not have done previously, while approximately 38,500 estates are expected to pay more tax than under the current rules.
Most estates will still not have an inheritance tax liability after the changes. There are also exceptions to the new rules. For example, death-in-service benefits paid from registered pension schemes will remain outside the scope of inheritance tax, while certain dependant's pensions are also excluded.
The reforms were announced at the 2024 Autumn Budget and have since been legislated for through the Finance Act 2026.
