Recent figures from the Financial Conduct Authority show that more than £91 billion was withdrawn from pension pots during the year to 31 March 2026, an increase of more than 21% on the previous year.

One reason suggested for this sharp rise is concern about the forthcoming changes to Inheritance Tax.

From 6 April 2027, most unused pension funds and pension death benefits will be taken into account when calculating the value of an estate for Inheritance Tax purposes.

Understandably, some pension holders may therefore be tempted to withdraw money from their pensions during their lifetime in an attempt to reduce a future Inheritance Tax bill.

But taking money out may not always be the right answer

There is an important point which can easily be overlooked.

Where pension benefits pass on death to a surviving spouse or civil partner, the normal spouse exemption from Inheritance Tax can still apply.

So, for example, a married pension holder might withdraw a substantial amount from a pension because they are concerned that pensions will become subject to Inheritance Tax after April 2027.

However, had that money remained within the pension and subsequently been paid to the surviving spouse, there may have been no Inheritance Tax to pay on that transfer on the first death.

Meanwhile, withdrawing the money during lifetime may have created completely different considerations. The money might become part of the individual’s ordinary estate, it may lose the tax advantages available within the pension, and there may also be Income Tax and investment consequences.

That does not mean money should always be left inside a pension. Nor does it mean taking tax-free cash or making lifetime gifts is necessarily wrong.

It simply means that the right answer will depend upon the individual’s circumstances.

Estate planning and pension planning should work together

This is a good example of why I believe estate planning should not be considered in isolation.

When reviewing a client’s Wills, Inheritance Tax position and arrangements for their family, I will often identify matters which should also be considered by their Independent Financial Adviser.

Likewise, an IFA reviewing pensions and investments may identify matters which should be reflected in the client’s Will or wider estate planning.

I am always very happy to work alongside a client’s existing financial adviser so that the two parts of the planning complement each other.

If you do not currently have an adviser, I am also happy to recommend a longstanding, highly qualified Independent Financial Adviser with whom I have worked for many years.

If you are considering withdrawing substantial sums from your pension because of the forthcoming Inheritance Tax changes, I would strongly recommend obtaining regulated financial advice before taking action.

A decision made purely to save Inheritance Tax could otherwise produce an unintended — and potentially expensive — result.

Do get in touch HERE if you would like to discuss this further or if we can help in any other way.

Lifetime Trustees Ltd. – Graham – 079 888 3691