Tens of thousands of older Britons are raiding their pension pots in a bid to pass wealth on to loved ones before a major tax shake-up takes effect.
The surge comes as retirees brace for changes announced in the Autumn Budget of October 2024, which will bring unused private pension savings within the scope of inheritance tax from April 2027.
Britons aged 75 and over pulled £1.4billion in lump sums from private pensions in the most recent year of available data, according to new figures from Lubbock Fine Wealth Management.
That represents a 35 per cent jump compared with the £1billion withdrawn in the previous year.
With the change now less than seven months away, growing numbers of over-75s appear to be taking action while they still can.
Almost 83,800 people in this age group made lump sum withdrawals during the period, up 27 per cent from 65,900 the year before.
Lubbock Fine Wealth Management believes the Government’s decision to bring unused pension pots into the inheritance tax net is encouraging more retirees to withdraw money and gift it to their children and grandchildren.
Under existing rules, gifts can generally fall outside a person’s estate for inheritance tax purposes if they survive for seven years after making them.
Gifts made within seven years of death can still be subject to inheritance tax.
For some retirees, withdrawing pension savings could therefore provide an opportunity to pass wealth down earlier, including helping younger relatives get on the property ladder or meet other significant financial costs.
Retirees can typically take up to 25 per cent of their pension pot as a tax-free lump sum, capped at just over £268,000
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GETTYAndrew Tricker, Chartered Financial Planner at Lubbock Fine Wealth Management, said the Government’s push to boost HMRC’s inheritance tax revenues “is likely to be galvanising more over-75s into action.”
“As the first pension pots get hit by IHT next year we could see even more intensive efforts to pass on assets IHT free,” Mr Tricker added.
He described the scale of activity as significant. “A huge number of people are now being proactive about cutting the IHT bills their children and grandchildren will have to pay,” he said.
Once seven years have passed, no inheritance tax is due on the gift | GETTY
Mr Tricker noted that taking a lump sum out of a pension “can stet some flexibility over their savings, for example to help children or grandchildren buy a home.”
However, Mr Tricker stressed that withdrawals must be accompanied by careful financial planning. “Money withdrawn from a pension is difficult to put back and they run the risk of finding themselves short of money later in retirement,” he warned.
There are also important tax thresholds to bear in mind.
Retirees can typically take up to 25 per cent of their pension pot as a tax-free lump sum, capped at just over £268,000.
Experts warn if someone is in very poor health, for example, they may want to consider other options rather than gifting
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GETTYThose considering gifting should also be aware that HMRC’s seven-year rule means any gifts made within seven years of death could still attract some level of inheritance tax.
Mr Tricker added that individual circumstances matter greatly. “If someone is in very poor health, for example, they may want to consider other options rather than gifting,” he said.
Professional advice, he emphasised, is essential.