Pension assets will soon become liable for inheritance tax, which could impact retirement savings plans for millions
Analysts are warning that an upcoming pension rule change will likely have a "major impact" on retirement savers as millions are at risk of paying inheritance tax (IHT).
With the clock ticking towards April 2027, when unused defined contribution pensions will for the first time fall within the scope of inheritance tax, new Hargreaves Lansdown research reveals that savers are already rethinking how they manage their retirement wealth.
According to a survey of 300 people carried out by Opinium, close to one in four respondents said they intended to withdraw their pension tax-free cash and pass it on to family members as a way of shrinking their taxable estate.
Meanwhile, more than a quarter indicated they would consult a financial adviser before making any decisions about how to respond to the looming policy shift.
Roughly a fifth of those surveyed said they would take income from their pension and use their allowances to make gifts to loved ones during their lifetime.
An identical proportion reported they would turn to non-pension assets, such as ISAs, to fund gifts aimed at reducing the overall value of their estate.
A further 21 per cent took a different approach entirely, saying they would prioritise spending down assets other than their pension to bring their estate below the IHT threshold.
Respondents were permitted to select more than one strategy, meaning many are weighing up a combination of tactics as they prepare for the rule change.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the forthcoming policy change had fundamentally altered how people think about their pension pots in later life.
She said: "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.
"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."
Ms Morrissey added that the research highlighted gifting as a central strategy, with around one in four people planning to access their tax-free cash and use allowances to transfer wealth while still alive rather than through a will.
The savings expert added: "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 also pointed to Junior SIPPs as a tool that could give younger family members a significant head start in building their own retirement savings, while simultaneously introducing them to the habit of investing early.
"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," Ms Morrissey warned.
The data also revealed that 27 per cent of respondents planned to seek professional financial guidance before settling on a course of action, a figure Morrissey suggested could rise as the April 2027 deadline draws nearer.
