Big changes coming from next year
State pensioners born before 1960 rushing to withdraw cash before new 2027 rule
State pensioners are rushing to withdraw their cash from their pensions – as drawdowns surge ahead of inheritance tax rules from the Labour Party government and HMRC in April of next year.
From April 6, 2027 most unused pension funds and death benefits will be added to the value of the estate. Birmingham firm Wesleyan has warned nine out of 10 advisers have seen an uptick in their clients speeding up pension drawdown.
Three in four say they were increasing withdrawals by between 5 and 15 per cent, with 18 per cent saying by more than 16 per cent, as per the outlet.
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As it stands, state pensioners receive the DWP full state pension from age 66, if they’re born before 1960. But many have private pots to supplement their income too.
Azets Wealth Management explains that sequencing risk occurs when “markets fall early in retirement and withdrawals continue at the same rate”, meaning the portfolio “must grow much faster later to compensate – a mathematical challenge that is often impossible to overcome”.
Over nine in 10 of advisers have identified risks posed to their own income streams when accelerated drawdown occurs during heightened market volatility.
Karen Blatchford, Managing Director of Distribution at Wesleyan said: “While it’s understandable that clients are looking to act ahead of IHT changes, advisers know that increasing withdrawal levels can have significant consequences, especially in the uncertain and volatile market conditions we’re experiencing today.
“That makes it vital that any changes to withdrawal strategies are supported by robust planning and advice to help clients maintain long-term financial resilience.”
Richard Cook, senior financial planner at Rathbones, comments: “Upping the amount you withdraw from your pension pot might seem tempting.
“[But] larger withdrawals risk pushing you into a higher income tax bracket, meaning more of your hard-earned savings could end up with the taxman rather than in your pocket.
“On top of that, taking out too much too soon can deplete your pension quicker than anticipated, leaving you financially exposed later in life when you may need the money most.”