IHT pension scramble shows ‘no sign of slowing down’, says Royal London boss
The mass scramble among UK pension savers to avoid being pulled into the inheritance tax net shows “no sign of slowing down”, as the policy shakeup creeps closer.
From April 2027, pensions will be included in the scope of inheritance tax (IHT), meaning unused funds and death benefits will count towards the value of a person’s estate for tax purposes.
The overhaul of the long-standing IHT exemption for defined contribution pots – combined with frozen tax thresholds which have dragged more-middle earners into higher bands – means thousands of additional estates are set to be tangled in the tax net.
This has caused an uptick of activity in the pension market. Barry O’Dwyer, chief executive of Royal London, expects this to persist beyond the April 2027 start date.
He said: “It has been happening because obviously people have known that this is coming for quite some time.
“I don’t think we see any sign of it calming down or slowing down in any way. I think it is going to be here for the next couple of years at least.”
The group reported new pension sales increasing five per cent to £4.7bn, driven by its workplace channel.
O’Dwyer said this reflected “people having more focus on their retirement plans” alongside “consolidating old pensions”.
Burnham and the Budget
Eyes across the City are now turning to the upcoming Autumn Budget, which Chancellor John Healey has set for 28 October.
During Starmer’s tenure in Cabinet speculation and leaks blighted the run up to the Budget, causing some pension savers to make rash, irreversible decisions.
In 2024, rumours that the tax-free lump sum limit could be capped at a lower threshold caused Brits to pull cash out of the tax-free wrapper and leave it exposed to inflation erosion and income tax in a standard savings account.
O’Dwyer urged Healey and the Treasury team, which also consists of Lucy Rigby back as City minister, to avoid speculation and instead provide clarity which allows “people to plan”.
O’Dwyer acknowledged that the “continuity in the Treasury, which included the retention of Torsten Bell as pensions minister and return of Lucy Rigby, reassured the market that policy changes introduced under Starmer will be implemented, preventing further upheaval for consumers.
Prime minister Andy Burnham and his cabinet are yet to explore policy changes to the pensions system, beyond committing to retain the state pension triple lock.
Targeted Support push
O’Dwyer also reiterated the firm’s commitment to its Targeted Support scheme, which provides tailored investment advice to customers. Royal London was the first provider to roll out the service, which is aimed at bridging the financial advice gap.
The scheme, which is for the mutual’s stocks and shares ISA, has supported 5,000 customers since launch.
The group is now working to extend the scheme into its pension offerings.
The Royal London boss said Burnham’s newly announced social care policies, coupled with growing life expectancy, are also likely to increase the number of people saving into pensions, making support in this market crucial going forward.