From April 2027, pensions will be subject to the 40% rate on estates worth up to £325,000 after the change was announced in the Autumn Budget last year.
As it stands, pension pots are not part of the homes, possessions and assets that form an estate.
Due to the change, savers are making moves to avoid being charged on their retirement kitty, with a fifth (21%) deciding to withdraw more money from their pension and spend more than they originally planned for, according to Interactive Investor’s survey.
A further fifth (19%) intend to take money out of the fund and gift it, while 8% will reduce their pension contributions.
Due to the IHT inclusion in the taxing of estates, 6% of the 1,000 respondents asked by the investment platform will even retire early.
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Using a pension as part of an estate is important for many, with over half (52%) believing the funds will form a key component of what they pass down to loved ones.
Meanwhile, the sentiment among pension savers regarding the system is not high, as almost half (44%) said they had no confidence in its current form.
Withdrawing more could lead to higher tax brackets
Myron Jobson, senior personal finance analyst at Interactive Investor, said the current faith that pension savers have in the system is “little surprise”.
Jobson said: “Our survey shows that, despite uncertainty over how IHT on pensions will be implemented, many people are already considering pre-emptive steps to reduce their future tax burden.
“It’s interesting to see that more people are considering drawing down larger sums from their pensions in response to these changes. At first glance, this might seem like a savvy move – accessing funds now to spend or gift before new tax rules come into effect.”
He added: “But there are important trade-offs to consider. Withdrawing more than necessary could push retirees into higher tax brackets, resulting in an unnecessarily large tax bill. There’s also the risk of depleting pension savings too quickly, leaving less for later life. While gifting money can be a tax-efficient strategy, careful planning is essential to avoid unintended financial pitfalls.
“A U-turn on this policy seems unlikely, given the Government’s need to bolster public finances. The Office for Budget Responsibility (OBR) expects these changes, alongside the extended freeze on nil-rate bands until 2029/30, to generate an additional £2.5bn in tax receipts by 2029/30.”
