Brits urged against ‘rash’ decisions amid inheritance tax fears or risk ‘costly mistake’ | Personal Finance | Finance

Pension experts have warned savers against making a “costly mistake” amid uncertainty over how a new tax will be applied in the UK.

Many people may be taking “pre-emptive steps” to minimise the expected burden, as pensions are set to lose their inheritance tax exemption from April 2027.

This means the levy may have to be paid on the money people want to pass onto their loved ones when they pass away.

Specialists say new research suggests that more than half of Brits consider their pension a “key component of their estate planning”.

Now, they are warning that making “rash” decisions in anticipation of the upcoming fiscal change, such as withdrawing large sums from pension pots, could lead to “costly mistakes”.

A spokesperson for Spencer Churchill Claims Advice said: “Many people are understandably worried about how inheritance tax on pensions will be implemented, and some are looking to access their funds early before the changes take effect.

“While this might seem like a sensible strategy, it could trigger unintended financial consequences, such as higher income tax bills and reduced pension security in later life.”

They added that withdrawing a large lump sum could in fact push retirees into a higher tax bracket.

This would lead to an “unnecessary tax hit”. The expert added: “At the same time, drawing down too much too soon risks depleting savings, leaving individuals struggling to fund their later years.”

Overall, pensioners should take a “measured” approach, it is recommended.

The spokesperson added: “A knee-jerk reaction to changing pension rules could do more harm than good.

“Instead of making hasty withdrawals, households should carefully plan their estate strategy to reduce inheritance tax liability while ensuring they retain enough pension savings for retirement.”

The firm also highlights that surveys show 44% of respondents have “no faith in pension stability due to frequent government policy changes”.

It added: “Frequent changes to pension taxation create uncertainty, making it harder for individuals to plan for their retirement with confidence.

“With pensions being a long-term investment, stability and clear guidance are crucial to ensuring people don’t make short-sighted decisions that could leave them financially vulnerable in later life.”