Savers are experiencing severe delays in accessing their pensions as providers take three times longer to release funds following Rachel Reeves’s Budget announcement. The delays come as savers rush to avoid the newly imposed inheritance tax on retirement pots, creating withdrawal request bottlenecks. In one extreme case, a pensioner had to wait two months to receive their funds, whereas, before Christmas, it typically took around two weeks.
According to Daniel Hough of wealth manager RBC Brewin Dolphin, the wait has extended to nearly six weeks. The surge in withdrawal requests coincides with the Budget announcement that pensions will no longer be exempt from inheritance tax starting in April 2027. Hough explained, “In response, many people have concluded that they would rather spend the money now to avoid leaving their families hefty inheritance tax bills.” This rush to access funds could have serious consequences for those needing to withdraw before the tax year ends on April 5.
Providers appear to be prioritizing withdrawals considered taxable income, resulting in delays for tax-free lump sums. Savers aged 55 and above can withdraw 25 percent of their pension tax-free, with subsequent withdrawals subject to income tax.
Pension delays concern retirees’ funds
Inheritance tax is charged at 40 percent on estates exceeding the nil-rate band of £325,000, with additional allowances for homeowners leaving property to their children. Thousands of families are expected to breach their inheritance tax allowances once pensions are included. The Government estimates that by 2027-28, 10,500 families will pay inheritance tax who otherwise would have avoided it, with a further 38,500 facing higher bills.
Stockbrokers Hargreaves Lansdown and AJ Bell have called on the Chancellor to reverse the inheritance tax changes on pensions. Although the changes were unveiled in last year’s Budget, they have caused widespread concern among savers. Experts warn that rushing to withdraw pension funds could leave some struggling to cover living costs or care fees later in life.
Tom Selby of AJ Bell advised, “It’s worth remembering that these are still proposals, with changes not due until April 2027, so pension savers should take a cautious approach and not rush to act.”
Retirees considering withdrawals should carefully weigh immediate tax benefits against long-term financial security as the Government continues to consult on implementing the tax on pensions upon death. Rachel Reeves has faced scrutiny over her policy decisions, with experts urging a measured approach to the proposed changes.
Image Credits: Photo by Giorgio Trovato on Unsplash
