Pension savers warned against 'costly and irreversible mistake' ahead of inheritance tax changes

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Experts warn that the consequences could force some people to work for longer than planned

Pension savers across Britain could be sleepwalking into a "costly and irreversible mistake."

The rush to get their affairs in order before next April risks wiping tens of thousands of pounds from their retirement savings.

Wealth planners have raised the alarm that Labour's inheritance tax changes, due to take effect from April 2027, are driving a surge in people hunting down old workplace pensions and merging them into a single pot.

The aim is to spare grieving families the administrative headache of tracking down multiple pension schemes after a death.

Under the reforms introduced by Rachel Reeves, the former chancellor, pensions will for the first time be assessed for inheritance tax.

Yet experts cautioned that consolidating without careful consideration could prove deeply damaging.

Alasdair Walker, of wealth planners Optimum Path, said there were "compelling reasons" not to combine pension pots.

Mr Walker warned: "You could be paying higher fees for 20 years or more. Some people could give up products with guaranteed annuity rates, potentially leaving them with less in retirement."

He also highlighted the risk of losing the right to draw on pension funds at 55. The Government is set to raise the minimum pension age to 57 in 2028, meaning those who surrender a protected lower access age could find their retirement pushed back by two years.

"These irreversible choices could potentially cost tens of thousands of pounds throughout retirement," Mr Walker said.

The financial consequences, he stressed, could force some people to work for longer than planned.

Andrew King, of Evelyn Partners, said enquiries about pension consolidation had risen since the inheritance tax changes were announced, but warned it was not the right move for everyone.

Mr King said: "Consolidation could mean lose out on beneficial features like a protected lower retirement age, enhanced tax-free cash and beneficial features like guaranteed annuity and growth rates."

He added that there was also the risk of a pension provider running into difficulty, and that investments could fall in value at any point.

The scale of the policy shift is significant. Ms Reeves's reforms will drag an additional 10,500 estates into inheritance tax each year. A further 38,500 estates that already face a bill will see their charges increase.

Experts also flagged concerns that the wave of consolidation requests could overwhelm pension providers. Becky O'Connor, of PensionBee, described the transfer process as a "provider lottery" that already affected thousands of savers annually.

Ms O'Connor warned: "If more people are looking to consolidate ahead of the change next year, the burden on providers could increase, causing longer delays.

"Someone could have their financial affairs in perfect order, only to find their pension is stuck in transit when the rules change."

She added: "Savers cannot plan effectively if the system cannot move at a reliable speed."

There are further risks for those who choose not to consolidate. Families could face unexpected inheritance tax bills years after an estate is settled if executors inadvertently miss pension pots during their search, requiring the estate to be recalculated.