New research indicates that pension savers are withdrawing money from their retirement pots earlier than planned, driven by concerns about inheritance tax changes set to take effect in April 2027. The findings, based on a survey of 85 financial advisers conducted by Royal London ahead of the Autumn Budget on October 28, reveal that worries about the tax treatment of pensions are already influencing financial decisions.
Advisers report surge in early withdrawals
More than half (51%) of advisers surveyed said they had observed an increase in clients withdrawing pension money earlier than expected. The same proportion reported more people giving away lump sums, as families seek ways to pass money on to loved ones before the new rules come into force.
From April 6, 2027, most unused pension funds and certain death benefits will be included in a person's estate for inheritance tax purposes. This change means some families could face a larger inheritance tax bill when a loved one dies, depending on the value of the estate and the exemptions available.
Growing client concerns
Almost two-thirds (64%) of advisers said clients had been asking about the inheritance tax treatment of pensions, making it the most commonly raised issue. Meanwhile, 84% said the changes had affected conversations with clients to some or a great extent.
Estate planning was another concern, mentioned by 51% of advisers, while 49% reported questions about inheritance tax more generally. There are also signs that people could change how they save for retirement, with 39% of advisers believing clients may start using other savings or investments, and a quarter (25%) thinking some could reduce their pension contributions.
Advisers call for certainty
However, 46% said it was still too early to tell what the longer-term impact would be. The findings come just days before the Autumn Budget, with advisers calling for more certainty rather than another round of changes. Nearly six in 10 (59%) said greater certainty around pension taxation was their biggest priority, while 53% wanted a simpler tax system.
Jamie Jenkins, Head of Policy at Royal London, said: "The bigger message coming through from advisers is that people need certainty and simplicity if they are going to plan confidently for the long term." He added: "Changes to the inheritance tax treatment of pensions are already influencing conversations and, in some cases, changing behaviour."
Potential impact on financial security
There is also concern about what the Budget could mean for people's finances. Almost two-thirds (62%) of advisers expect it to have a negative impact on their clients' long-term financial security, with 20% anticipating a significant negative effect. Just 9% expect a positive impact.
Mr Jenkins said advisers wanted greater stability around pension taxation, adding that clearer rules would help people make important decisions about saving, investing and retirement.
