New research from Wesleyan reveals that nine out of ten financial advisers have witnessed clients speeding up their pension withdrawals ahead of a major tax rule change. The Labour Party government's reform, which comes into effect in April 2027, will make pensions subject to Inheritance Tax (IHT).
Surge in Accelerated Drawdown
Financial advisers are reporting a significant increase in clients accelerating drawdown to mitigate the impact of the upcoming IHT changes. According to the study, 90 per cent of advisers said they had seen a rise in clients accelerating pension withdrawals in anticipation of the reform.
Karen Blatchford, Managing Director of Distribution at Wesleyan, commented: “While it’s understandable that clients are looking to act ahead of IHT changes, advisers know that increasing withdrawal levels can have significant consequences, especially in the uncertain and volatile market conditions we’re experiencing today.”
Advisers Adjust Strategies
Wesleyan’s research also reveals that advisers are helping clients who are accelerating drawdown due to IHT concerns adjust their asset allocations. This is to mitigate issues such as sequencing risk and volatility drag, which can erode long-term returns.
Blatchford added: “Solutions that can help to manage volatility are becoming increasingly important. Smoothed funds offer a way to reduce the impact of short-term market fluctuations, helping to provide more stable returns for clients in or approaching drawdown.”
Withdrawal Increases and Concerns
When asked by how much clients are typically increasing their annual pension withdrawals due to IHT concerns, three quarters (74 per cent) of advisers said between 5 per cent and 15 per cent, while nearly a fifth (18 per cent) reported increases of more than 16 per cent.
Advisers are worried about the long-term impact of accelerated pension drawdown on their clients’ finances. Nine in ten said they were concerned about volatility drag (90 per cent) and sequencing risk (88 per cent).
Blatchford emphasised the importance of robust planning: “That makes it vital that any changes to withdrawal strategies are supported by robust planning and advice to help clients maintain long-term financial resilience.”
