Retirement savers warned pots are ‘under threat’ – ‘watch out for these risks’ (Image: Getty)
savers are being warned of the risks of accessing their early, as more are opting to do so following the Chancellor’s Budget proposals.
Just over a quarter of investors (26%) said they plan to draw down money from their pension pots “as early as possible” to use it more tax-efficiently, a new survey shows.
But Rob Morgan, chief investment analyst at , is wary about doing so.
He said: “Clear risks arise when pensions are drawn down prematurely or contributions are reduced.
“Decisions made without forensic attention to detail and consideration of all long-term outcomes can lead to unfortunate consequences in retirement.”
During the Budget, announced that from 2027, pending a review, pensions will be subject to inheritance tax.
This means defined contribution pensions, personal pensions, and SIPPs will count towards an individual’s estate value upon death.
:
Pensions have become a less appealing investment tool following Rachel Reeves’s Budget. (Image: Getty)
These changes could result in inheritors paying up to 52%, 64%, or 67% in combined and income tax, depending on their tax rate, if the total assets exceed the IHT “nil-rate band” of £325,000.
As a result of these changes, Charles Stanley’s research shows that a further fifth (21%) of investors plan to draw down money from their pension and gift it to their family, therefore not incurring any additional tax on their pension savings in the event of their death.
A further 18% plan to spend their pension pot faster to remove it from their estate.
Experts at Charles Stanley warn that making such a move could eventually lead to more individuals running out of money – one of the major pension drawdown risks.
Don’t miss… [EXPLAINED]
Mr Morgan said: “The Chancellor’s decision to include pensions within the inheritance tax umbrella is affecting investor behaviour already, two years before the changes come into effect.
“With IHT tax thresholds frozen until 2030, it’s natural that families consider how to best protect their wealth as a greater proportion of estates become liable to the tax.”
However, he added: “With each individual having their own desired outcome for their estates, it’s vital that professional financial advice is sought so that they can have the right plan in place.”