Savers are now encountering delays of up to six weeks when accessing their pensions, following widespread concern sparked by Chancellor Rachel Reeves’ Budget announcement.
Pension providers have seen processing times triple as they struggle to manage a surge in withdrawal requests from individuals keen to sidestep the Chancellor’s impending inheritance tax (IHT) changes.
In one extreme case, a pensioner was left waiting two months for their funds.
During the Budget, Ms Reeves declared that from April 2027, pension pots would no longer be exempt from inheritance tax. This has prompted many retirees to act swiftly to mitigate potential tax liabilities.
Daniel Hough, from wealth management firm RBC Brewin Dolphin, noted that numerous pensioners are opting to withdraw and spend their savings in an effort to reduce their exposure to IHT.
“There are significant delays for those attempting to access their pension funds due to a surge in withdrawal requests since October’s Budget. Before Christmas, withdrawals typically took around two weeks to process, whereas now, it is closer to six weeks – with some cases extending to two months,” Mr Hough explained.
“The delays directly correlate with the announcement that pensions will be included within estates for inheritance tax purposes from 6 April 2027. As a result, many individuals are choosing to withdraw their pension funds now rather than leave their families with a substantial tax burden.”
Currently, inheritance tax is levied at 40% on estates exceeding the £325,000 nil-rate band. Homeowners passing their primary residence to direct descendants can claim an additional £175,000 tax-free allowance, allowing couples to transfer up to £1 million without incurring tax.
However, once pensions are incorporated into the estate, thousands more will surpass the inheritance tax threshold.
In response, many retirees are opting to spend their pension funds now rather than risk their beneficiaries facing steep IHT bills. However, this approach raises concerns about financial security in later life, as some may struggle to afford essential living expenses or care costs.
The ongoing delays could also have ramifications for those attempting to withdraw funds before the tax year ends on 5 April.
Some retirees strategically withdraw additional income ahead of the new tax year if their annual earnings are unlikely to breach the £50,270 higher tax threshold, as any income above this level incurs a 40% tax charge.
Individuals aged 55 and over can withdraw 25% of their pension as a tax-free lump sum, with subsequent withdrawals subject to income tax. However, with pension providers overwhelmed by demand, those planning to access their savings must prepare for potential delays.
