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Surge in pension withdrawals raises concerns
Retirees withdrew £5 billion from pensions in early 2025 amid inheritance tax fears.
Pension withdrawals surge amid fears of tax changes affecting estates.
Retirees withdraw billions as pension tax changes loom
New data from HMRC reveals that retirees withdrew £5 billion from pensions in early 2025, marking a 24 percent rise compared to last year. This spike follows announcements made by Rachel Reeves in last autumn's Budget, which proposed taxing unspent defined contribution pensions for inheritance tax starting in spring 2027. As a result, 672,000 people made taxable withdrawals above the 25 percent tax-free limit during this period, with many choosing to access their savings sooner to avoid a potential 40 percent tax charge on their estates after death. Experts warn that while this strategy may provide immediate relief, it could lead to significant financial risks, as early withdrawals could push recipients into a higher income tax bracket.
Key Takeaways
"Those with an IHT problem and surplus pension savings are worried about lumping their children with a hefty tax bill."
Craig Rickman highlights the anxiety felt by retirees concerned about inheritance tax.
"If your total income for the year trips above £50,270, you’ll suffer 40 percent tax on the excess."
Rickman warns about the financial repercussions of premature withdrawals.
"The general sentiment toward IHT is largely negative. The Government must be careful not to erode confidence in pensions."
Jon Greer discusses public sentiment on inheritance tax and its impact on pension withdrawals.
"Many clients are primarily accessing their tax-free lump sums rather than triggering taxable withdrawals."
Evelyn Partners acknowledges varied motivations behind pension withdrawals.
The noticeable increase in pension withdrawals reflects a deepening anxiety among retirees about impending tax reforms. Wealthier individuals are shifting their strategies, acting preemptively to protect their estates. This trend not only highlights concerns about inheritance tax but also indicates a broader trepidation about financial security in retirement. Financial advisors are emphasizing the need for careful planning, as hasty decisions could lead to both immediate tax liabilities and future financial instability.
Highlights
- Pension pots are being raided to avoid hefty tax burdens after death.
- Retirees are acting quickly to safeguard their legacies amid tax fears.
- Financial security could be at risk if pension withdrawals are rushed.
- The sentiment around inheritance tax is heavily negative.
Concerns over pension tax policy
The proposal to tax unspent pensions for inheritance raises significant fear among retirees, leading to increased withdrawals that may harm long-term financial security.
Future tax policies will shape the way retirees manage their savings.
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