Retirees are currently experiencing significant delays—sometimes extending to several weeks—when attempting to access their pension funds. This surge in withdrawal requests was triggered by Rachel Reeves’s recent Budget announcement, which revealed that pension pots would no longer be exempt from inheritance tax (IHT) starting in April 2027.
As a direct consequence, financial service providers are grappling with an influx of requests, with some individuals facing delays of up to two months. Daniel Hough, a financial planner at RBC Brewin Dolphin, remarked, “There are widespread delays for individuals looking to withdraw funds from their pensions, as providers have been inundated with requests since the October Budget announcement.” He noted that while processing typically took about two weeks prior to the holiday season, it has now ballooned to around six weeks, with some cases taking as long as two months for clients to receive their cash.
This situation follows the October Budget, during which Reeves indicated that pensions would be included within individuals’ estates for IHT calculation starting April 6, 2027. In light of this, many individuals are reassessing their financial strategies, opting to withdraw their pension savings rather than potentially burden their families with a hefty IHT bill.
Chris Ball, the chief executive of the independent advisory firm Hoxton Wealth, commented, “In the wake of the recent Budget, we’ve witnessed a notable increase in inquiries about pension access, particularly from those looking to utilize their retirement funds.” He continued, “This surge in demand has placed substantial pressure on pension providers, leading to processing delays that can last for several weeks or even months, depending on the provider.”
Inheritance tax is imposed at a rate of 40 percent on estates valued above £325,000. Homeowners who bequeath their primary residence to their children can claim an additional tax-free allowance of £175,000, allowing couples to pass on approximately £1 million without incurring tax liabilities. However, many individuals will exceed this threshold once their pensions are factored in.
Lisa Picardo, chief business officer at PensionBee, stated, “The increase in pension withdrawals following the Budget highlights the crucial importance of tax stability in long-term financial planning and the potential repercussions of uncertainty and change.” She added, “With pensions set to be included in estates for IHT purposes from 2027, it’s only natural that many savers are reevaluating their options.”
Considerations for Pension Withdrawals
Experts caution that withdrawing money from a pension now could jeopardize financial stability in later life. Rob Morgan, chief investment analyst at Charles Stanley, emphasized, “It is vital for individuals to think carefully about pension withdrawals and consider the long-term consequences. Taking money out is generally a one-off decision that cannot be reversed.”
He highlighted the benefits of retaining funds within a pension, where investment returns can accumulate tax-free. Furthermore, withdrawals are subject to taxation beyond the initial 25 percent exemption, meaning substantial withdrawals may significantly diminish due to income tax implications. “Planning withdrawals in alignment with income patterns and individual circumstances for maximum tax efficiency is crucial, and individuals should avoid making hasty decisions,” he advised.
Notably, the proposed tax changes are not set to take effect until April 2027, and the specifics of these changes remain largely unknown. Consequently, pension savers have ample time to deliberate on their options rather than rush into decisions.
For those still considering withdrawals, it is advisable to plan ahead given the current delays. Hough noted, “Ultimately, the speed at which you can access your pension is largely determined by how quickly the pension provider can process requests.” He cautioned that if individuals aim to withdraw funds before the end of the tax year, it is unlikely to occur within the desired timeframe, possibly pushing the withdrawal into the 2025/26 tax year instead.
He also indicated that providers appear to prioritize requests for withdrawals that are taxable income, given the urgency of these transactions falling within specific tax years. In contrast, tax-free lump sum requests are taking longer due to the absence of immediate taxation consequences.
Regardless of whether the pension provider is large or small, the delays are consistent across the board. Hough advised, “If you submit withdrawal instructions, be prepared for it to take four to five weeks to complete, and consult your financial adviser regarding the potential impact on your financial situation in the coming months.”
Some providers anticipate an uptick in withdrawal requests as the end of the tax year approaches. Jon Greer, head of retirement policy at Quilter, remarked, “As we near the end of the tax year, we often see a surge of individuals making various financial decisions, including accessing their pension funds.” He added that providers typically set clear deadlines for customers to ensure withdrawal requests are processed and funds disbursed within the current tax year.
These deadlines are designed to provide customers with the utmost assurance that their funds will be available when needed. “Certain transactions may be expedited, particularly when the amounts to withdraw do not require asset liquidation due to available cash,” Greer concluded.
