New research from PensionBee reveals deep uncertainty among savers about how to respond to the Government’s decision to bring unused pensions within the scope of Inheritance Tax (IHT) from 2027, with more than half of respondents looking to change their financial strategy once pensions fall under IHT.
The nationally representative survey reveals just how divisive the issue could be. Over a quarter (26%) of respondents said they would draw money from their pensions earlier, while nearly a quarter (24%) would look to alternative savings vehicles such as ISAs or annuities. By contrast, 38% of those aged 65 and over said the change would not affect them, as they have no plans to pass pensions on as an inheritance.
Knowledge gaps are widespread. Overall, 16% of all respondents said they did not understand the IHT implications of pensions, with this figure nearly doubling to 30% among those earning £20,000 - £24,999.
Responses also varied significantly by age and income. A third (32%) of those aged 55-64 said they would take money out earlier, while 38% of over-65s said they were unaffected as they did not plan to leave their pension as inheritance.
By contrast, wealthier households showed greater readiness to pivot towards other financial strategies: 44% of those earning £100,000+ said they would seek alternatives like ISAs or annuities, compared with just 10% of those earning £15,000 - £19,999.
Given the greater likelihood of being impacted by the changes, it’s no surprise that higher earners are better prepared for IHT reforms.
For most savers, no change will be necessary, though there may be cases where lower earners could be drawn in - for instance those who own larger assets, or build up larger than expected savings or pensions during their lifetimes.
For the overwhelming majority, staying calm and avoiding impulsive changes to the way they save and invest will be the best course of action, whilst also seeking guidance or impartial financial advice where appropriate.
With the Budget fast approaching, the findings underline the challenges for policymakers in balancing fiscal priorities with the need for clarity and longer term stability for millions of savers planning their retirement.
Lisa Picardo, Chief Business Officer UK at PensionBee, commented:
“For many, financial and tax planning and pensions are already complicated enough, and these findings reveal just how unsettled people feel about the upcoming changes to inheritance tax on pensions.
The fact that one in six savers admit they don’t understand what these rule changes mean for them highlights the scale of the knowledge gap. While higher earners may feel more able to be more proactive or to adapt, millions of ordinary savers risk feeling even more left behind.
Pensions should give people confidence, not create confusion. Constant shifts in policy make it far harder for savers to plan for the long term, and undermine the environment of trust that’s essential to support good retirement outcomes.
Savers need simplicity, clarity and stability from government and industry so they can make informed decisions and build retirement plans with confidence.”
