Plans to bring unused pensions into the scope of inheritance tax (IHT) have had a hit on attitudes towards pensions, with industry research suggesting that many are taking money out of their pensions as a result, while others have been left "disappointed" or "disillusioned".

The government previously confirmed that unused defined contribution pension funds will be included in estates and subject to IHT from April 2027, as proposed in the Autumn 2024 Budget.

The government has suggested that the change will raise an additional £3.44bn in IHT over its first three years of operation, with around 10,500 estates paying IHT in 2027/28 who would not have done so previously, and another 38,000 paying more than they would have.

But despite broad industry support for the policy intent, this has had an impact on pension saving trends, as Downing's survey revealed that nearly half (47 per cent) of advisers have had clients say clients are cutting pension contributions to invest in IHT solutions ahead of the deadline. 

It also found that a further 30 per cent said clients are taking money out of pensions to invest in IHT planning solutions, while 75 per cent of advisers said clients are increasing the amount of income they take from pensions in response to the new measures.

In addition to this, nearly half (47 per cent) are taking money to give as gifts or cutting contributions, while nearly two out of five (36 per cent) are switching pension contributions to investing in property.

Downing head of retail sales, Mark Dunn, said: “The inclusion of unused pensions within estates has fundamentally reshaped the inheritance planning landscape, forcing advisers and clients alike to rethink how they balance long-term income needs with intergenerational wealth transfer.

"The policy change is driving a wave of innovation in IHT solutions, and advisers are now treating pension pots not just as retirement income, but as strategic assets for estate planning.”

However, separate research from Charles Stanley, part of Raymond James Wealth Management, found that nearly one in five (19 per cent) high-net worth individuals aged 55 and over are completely unaware of the pension changes coming into effect in April 2027. 

While 51 per cent say they are somewhat aware of the changes coming into effect, they have only heard of them and don’t know exactly what they are or what they mean.

Charles Stanley's research revealed a similar trend in terms of the steps being taken by those who are aware of the changes, as 15 per cent of those who are taking action are spending money from their pension to reduce their IHT liability, while 14 per cent are more focused on alternative tax-efficient savings vehicles.

But, "alarmingly", even those who are aware of changes coming into effect are not all taking action, as 25 per cent of 55+ year olds are actively not taking any action to account for the pension changes, while 8 per cent don’t know what they can do to account for the upcoming changes.

The research showed that the changes have also impacted attitudes towards pension saving, as sentiment among those aged 55 and above is largely negative.

In particular, 32 per cent said they feel disappointed by the pension changes coming into effect, while 23 per cent feel frustrated and 20 per cent feel disillusioned. 

However, 10 per cent felt confident about the pension changes, while a further 8 per cent said they are unbothered when thinking about the pension changes coming into effect.

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