Pensioners desperate to withdraw their hard-earned savings are facing six-week delays as Rachel Reeves’ tax raid sparks chaos among providers.
Some savers have even been forced to wait two months to access their private pension pot nest eggs.
Financial firms have been inundated with withdrawal requests since Rachel Reeves used her October Budget to announce that, from April 2027, pension pots would no longer be shielded from death duties.
Under the new arrangements, any unused pension pots could be taxed at the inheritance tax rate of 40%, while the recipient will also be taxed at their standard income tax rate, which can be 20%, 40% or 45%.
This double taxation will see the bereaved hit with massive payments to the taxman that will wipe out a huge slice of their inheritance.
Financial firms have been inundated with withdrawal requests (Image: Getty)
Daniel Hough, of RBC Brewin Dolphin, warned: “It used to take two weeks to withdraw pension money – now it’s taking six, sometimes even longer. We’ve had cases where it’s taken two months for a client to receive their cash.”
Many are rushing to withdraw large lump sums, fearing that their heirs could otherwise be hit with a devastating 40% IHT bill.
Under current rules, pensions are one of the most tax-efficient ways to pass on wealth, as they are not typically included in an estate for IHT. But Ms Reeves’ plan to close this ‘loophole’ has left savers scrambling.
Experts say the surge in withdrawal requests is directly linked to the tax raid. Mr Hough added: “It is no coincidence that these delays tie in with pensions being dragged into inheritance tax from April 2027. Many people have decided they would rather spend the money themselves than let the taxman take it.”
Nicholas Nesbitt from the accountancy firm Forvis Mazars said there had been a significant increase in savers withdrawing funds from their pension before the end of the tax year, and particularly from those with larger pension pots.
“I have heard of significant delays in taking a lump sum and starting pension income for clients in DIY pension arrangements,” he said. “The delays can be easier to manage for an adviser as they often have better lines of communication with the pension administrator.”
Thousands more families are set to breach their IHT allowances when pensions are included. The Government has estimated that 10,500 families will be dragged into paying IHT in 2027-28 as a direct result of the changes – while 38,500 will see their bills soar.
For some, the tax hit will be eye-watering. Under new rules, an additional rate taxpayer in England with a £350,000 pension could see almost 90% of it swallowed up by tax after IHT and income tax deductions. In Scotland, it could be even worse, with an effective rate of 91.5%.
While pension withdrawals above £50,270 attract a higher tax rate of 40%, many savers are choosing to take the hit now – believing it is better than effectively seeing their pension pot taxed twice when they die.
With panic growing, major investment firms including Hargreaves Lansdown and AJ Bell have urged Ms Reeves to reverse the policy.
Tom Selby, of AJ Bell, warned: “These are still just proposals, and we don’t yet know what the final rules will look like. But in the meantime, pension savers should take a cautious and measured approach, rather than rushing to act.”