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Request for help from IFAs/wealth managers - re: older people looking to spend pension cash in response to IHT clampdown

Journalist: Rupert Jones, The Guardian

ended 27. February 2025

Hi there - so I'm wondering if there any any IFAs or wealth managers who might be able to help with this. I'm looking to put together a piece linked to the October announcement that unspent money left in a pension plan after someone's death will be liable to inheritance tax from April 2027. There have been predictions that some older people are as a result likely to withdraw more of their pension cash and spend it on long-haul trips, cruises, home improvements, luxuries for themselves, or take their children/grandkids on big trips, hand over money etc, so that the government can't get its mitts on their money. I've been hearing anecdotally that some older people are already thinking this way. It would be great to hear from anyone about whether they have had any clients talking about this sort of thing, and/or whether they think this is something that will become more of an issue going forward. I would aim to include as many as I can in my piece. Thanks, Rupert

3 responses from the Newspage community

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Editor
Gabriel McKeown
Political & Economics Writer at Sad Rabbit - Substack Newsletter
Historically, pensions have been a tax-efficient tool, allowing retirees to accumulate and preserve significant sums, thus guiding their investment strategy from the outset. However, now that unspent pensions will be drawn into the IHT net, clients are already reshaping how to deploy their retirement savings and update their entire investment approach. From what we’ve observed, the response among investors is that if the government is going to tax their pension savings, they’ll spend it before that happens. Another critical consequence of this shift is a change in allocation preferences, removing the incentive to maximise portfolio growth, and instead, we are seeing an increased preference for lower-risk allocations. Investors are now favouring capital preservation strategies, moving towards fixed income, cash, and lower-volatility assets, with the priority no longer being to grow the portfolio aggressively but to maintain sufficient liquidity for spending while mitigating market risk.
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Philip Dragoumis
Director and Owner at Thera Wealth Management
Yes, we have certainly been having these exact conversations with our wealthier clients who up till now were reserving their pension funds as an inheritance tax free legacy to their children. It's not always easy for people to increase their spending- we have always advised for them to spend as much they want or need anyway. So they are now looking to draw down the money. They can gift it on a regular basis to their children (which is very tax efficient as this is a gift out of normal expenditure which leaves the estate immediately not after 7 years) or they can use it to fund Whole of life Insurance policies which can be used to offset any inheritance tax payable on death.

If you think about it , it was a smart move from the government as all this money will be taxed and then spent in the economy now (or at least from April 2027) rather than much later.
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Joshua Gerstler
Chartered Financial Planner & Wealth Manager at The Orchard Practice
We have not seen this happening and nor are we currently recommending this to the families that we look after. We need to wait until the legislation is finalised before changing our approach. Of course if people want to access the money and spend it then they should do so. Life is too short to save it all. However, at the moment, whilst there are still two retirees in the family, we are recommending that they continue as planned because there will be no inheritance tax to pay when the pension passed to the surviving spouse. Once there is a sole retiree then we may adjust our advice, based on the finalised legislation.