Thousands of pension savers are rethinking their retirement plans under Andy Burnham's Labour government, ahead of sweeping inheritance tax changes expected to take effect from April 2027. The reforms, first announced by former Chancellor Rachel Reeves, will bring unused defined contribution pension pots into the scope of inheritance tax for the first time.
A survey of 300 people by Hargreaves Lansdown found one in four respondents plan to withdraw tax-free cash from their pension and gift it to family members, while more than a quarter said they intended to seek professional financial advice before responding to the changes.
Retirement plans reconsidered
Helen Morrissey, Head of Retirement Analysis at Hargreaves Lansdown, said the policy had forced many people to rethink their plans. "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."
One option being considered is making gifts while still alive, allowing families to benefit sooner while potentially reducing the size of an estate for inheritance tax purposes. Ms Morrissey said this could include helping children or grandchildren with a house deposit, contributing towards a wedding or making regular payments into a Junior ISA to help fund future education costs. "It could be a one-off amount towards a house deposit or wedding, for instance, or regular contributions into a Junior ISA to help someone afford university later down the line," she said.
Warning against rash decisions
However, she warned against making rash decisions simply to avoid tax. "It's important not to give away too much, too quickly. This risks potentially running short of money further down the line, which can cause serious challenges," she added.
The inheritance tax changes are expected to represent one of the biggest shake-ups to pension planning in years, with financial experts urging savers to carefully review their retirement strategy. While many are considering gifting money to reduce future tax bills, experts stress that decisions should form part of a long-term financial plan rather than being driven solely by the upcoming rule changes.
