The upcoming changes to pensions announced in The Chancellors autumn budget have prompted many people to reassess their financial plan and look at ways they can withdraw money from their pension.

We have seen an increase in enquiries from clients looking to understand how the changes may impact their retirement plans. The impact on Inheritance Tax is top of our clients list of concerns.
Withdrawing money from your pension ahead of the changes in 2027 could reduce your IHT liability. However, it is essential that the implications of doing so are understood so that the decision does not adversely affect your retirement. It is also important to remember that most estates will not pay extra IHT as they will remain below the current thresholds.

Should you have any questions regarding this, please speak to your Adviser.

Pension Withdrawal Rules: What Has Changed?

One of the most notable announcements made in the Autumn Budget were the changes to inherited pensions.

From 6 April 2027, any unused pension savings in a money purchase scheme (personal pension or SIPP) will be subject to Inheritance Tax (IHT). There will be a consultation paper out that will determine how the money will be collected. A summary of all changes announced in the autumn budget is available on our website here.
Understandably, this has prompted many people to want to use their pension savings or look at ways of leaving it to their family before they die so that it is not subject to IHT upon their death.

How do I withdraw money from my pension?

Withdrawing money from your pension should be considered carefully alongside your financial adviser. It is essential to understand how any withdrawals will affect the viability of your retirement savings.

To withdraw funds from your pension, you must be at least 55 (unless advised otherwise within the scheme rules). You can take 25% as a tax-free lump sum, up to a maximum of £268,275 across all arrangements, and anything above this would be taxed as income.

However, withdrawing money from your pension is not as simple as making a withdrawal from your bank. The process typically involves the following steps:

1. Assessment – Your financial adviser will work with you to assess your financial situation and retirement goals to determine whether withdrawing from your pension is the right decision for you. Your Adviser will confirm the recommendation in writing, for our agreement.
2. Decision Confirmation – Once we receive your agreement to proceed with the withdrawal, we submit a request to your pension provider.
3. Disinvestment (if applicable) – Should there not be enough money in cash to settle the withdrawal, part of the request to the pension provider involves selling funds held within the pension to generate the amount you have requested to withdraw. Please note that when selling funds, it can take up to an average of 5 working days, however in some cases it can take longer, for the proceeds to settle into cash, before the withdrawal can be made to you.
4. Provider Verification – Your pension provider will review the request and conduct necessary checks to ensure its compliance with regulations. The funds will then be sold in accordance with our request.
5. Funds Transfer – Once the funds have settled, the funds are subsequently transferred to you in a secure and timely manner. Payments are normally sent via BACS which can take between 3-5 working days to settle in your personal bank account

Considerations Before Withdrawing from Your Pension

Before accessing your pension savings, it is crucial to consider several factors:

• Tax Implications – Any withdrawal beyond the 25% tax-free allowance is subject to income tax, which could affect your overall tax liability.
• Impact on Retirement Income – Withdrawing large sums early may reduce your long-term retirement income and financial security.
• Investment Growth – Keeping funds invested for longer may result in greater growth, providing more financial stability in later years.
• Understanding your IHT Liability – Is the impact on your IHT liability significant? Is your estate large enough to be impacted? Are there other options available to reduce your IHT rather than withdrawing from your pension? MPA can work with you to ensure you understand all options.

Contact SWP for Advice

If you are considering withdrawing money from your pension and want tailored advice, contact our team today. We are here to guide you through the process and ensure you make the best financial choices for your future.