More than two thirds of independent financial advisers recommend their clients increase pension withdrawals ahead of changes to the way inheritance tax is calculated from 2027.
Four in five IFAs are reevaluating how pensions are used as retirement income, research by Standard Life reveals, after the Autumn Budget announcement that pensions would be brought into the scope for inheritance tax.
One in ten advisers said they are undertaking a full review of the role of pensions in clients’ plans.
As a result of the impending changes, 69 per cent said they recommended taking increased income from pensions, with 43 per cent of these telling their clients to increase their retirement income by 5 per cent.
The traditional pension withdrawal recommendation is 4 per cent per year, but a large chunk of advisers now advise an increase.
Spend spend spend: Advisers are recommending that pensions increase their pension withdrawals
Claire Altman, of Standard Life, said: ‘The planned extension of inheritance tax to cover pension assets from 2027 has clearly had a profound effect on how IFAs are advising their clients.
‘The fact that such a large number are having conversations with their clients about increasing the level of income they take in retirement gives a clear signal as to how advisers are responding to these changes.
‘The planned extension of inheritance tax to cover pension assets from 2027 has clearly had a profound effect on how IFAs are advising their clients, and the fact that such a large number are having conversations with their clients about increasing the level of income they take in retirement gives a clear signal as to how advisers are responding to these changes.’
Inheritance tax is charged at 40 per cent over the nil-rate band of £325,000. Many also have access to a £175,000 residence nil rate band and ability to transfer allowances to their spouse when they die.
The move will likely see more families dragged into the inheritance tax net over the coming years, with the tax-free allowance set to be frozen until 2030.
Currently the wealthiest 4 per cent of families pay inheritance tax. Between April and January, inheritance tax receipts hit a record high of £7billion, an increase of £700million from the same period a year ago.
Around two thirds of advisers expect there could be further tax stings in the upcoming Spring Statement or next Autumn Budget.
Annuities in favour
‘In addition to increasing withdrawal rates for those in drawdown,’ Altman says, ‘advisers are also considering other means of taking an income and are turning to annuities in increasing numbers due to a combination of the certainty they provide and the attractive rates on offer.’
Some 74 per cent of advisers are reconsidering annuities as an option, with 27 per cent increasing the number of annuity purchases they are recommending to clients.
According to figures from ABI, annuity purchases grew by 24 per cent in 2024, totalling £7billion.
Standard Life data indicates that the average annuity premium has increased by 14 per cent since the Autumn Budget.
Annuity rates are currently appealing, having increased 2.5 per cent between January and September last year.
