Retirement savings are "under threat" after the announcement that pensions will be subject to inheritance tax (IHT) from 2027, according to research from Charles Stanley Direct.

It found that just over a quarter (26 per cent) of 'DIY investors' planned to withdraw money from their pension as early as possible to use it more tax-efficiently.

Twenty-one per cent planned to withdraw 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, and 18 per cent planned to spend their pension pot faster to remove it from their estate.

The Chancellor, Rachel Reeves, announced in the Autumn Budget that pensions will be subject to inheritance tax from 2027. This means that pensions - including defined contribution, personal pensions, and self-invested personal pensions (SIPPs) – will be included in the value of an individual's estate when they die.

The changes could mean that, depending on whether inheritors are basic, higher, or additional rate payers, they will pay a combined 52, 64, or 67 per cent IHT and income tax on inheriting an individual's pension, provided the combined assets are over the IHT "nil-rate band" of £325,000.

Since the Chancellor's announcement, some have questioned the appeal of pensions as an investment vehicle.

The research also revealed that 17 per cent of investors said they would reduce their SIPP or personal pension contributions to divert to a more tax-efficient vehicle. A further 16 per cent said they would now reduce their workplace pension contributions to divert to a more tax-efficient vehicle.

However, not all investors surveyed were sure the changes would impact them.

Almost a third (30 per cent) of investors said they wanted to talk to a financial adviser before making any decisions regarding their pension. Eleven per cent said their estate is unlikely to be eligible for IHT, so it won't impact them.

Seven per cent said they didn’t understand how pension changes would impact them – however, this rises to 10 per cent for baby boomers (age 60-78), who are most likely to be affected.

Commenting on the findings, Charles Stanley Direct chief investment analyst, Rob Morgan, said the Chancellor's decision to include pensions within the inheritance tax umbrella was "already affecting investor behaviour."

“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, 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. 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."

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