Quick Answer: The pension withdrawal rule changes UK savers must plan for include inheritance tax on unused pension funds from 6 April 2027 and the minimum access age rising from 55 to 57 on 6 April 2028. Both are already law.
Retirement planning in Britain is changing with time. Two dates now dominate any conversation about drawing a pension. Neither affects the cash you draw this month. They change when you start, and what happens to what you leave behind.
- Unused pension funds enter your estate for inheritance tax from 6 April 2027.
- The normal minimum pension age climbs from 55 to 57 on 6 April 2028.
- The 25% tax-free lump sum survives, capped at £268,275 for 2026/27.
- Husbands, wives and civil partners stay exempt from inheritance tax.
- Cashing in early to dodge the charge often costs more than the charge itself.
The Shake-Up At a Glance
| What changes | When | Who feels it |
|---|---|---|
| Unused pension pots counted in the estate | Deaths on or after 6 April 2027 | Non-exempt heirs, such as children |
| Access age moves from 55 to 57 | 6 April 2028 | Savers born after 5 April 1973 |
| Nil-rate bands held at £325,000 and £175,000 | Until 5 April 2031 | Estates near the threshold |
| Death-in-service lump sums stay outside inheritance tax | From 6 April 2027 | Working scheme members |
Pensions Join the Inheritance Tax Net in 2027
For years a pot passed on untouched by inheritance tax. That ends for deaths on or after 6 April 2027. The Finance Act 2026 took Royal Assent on 18 March 2026, so the measure is law, not a proposal.
HMRC’s technical note, published on GOV UK, describes the sums caught as “notional pension property“. It covers unused money purchase funds, certain defined benefit lump sums and guaranteed payments still running after death. The aim is to stop schemes being marketed as wealth transfer tools rather than retirement income.
Anything above your allowances is taxed at 40%. Leave a tenth of the net estate to charity, and that rate drops to 36%.
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How the Tax Will Actually Be Paid
Executors, not pension firms, carry the reporting duty here. They must ask each scheme for a date-of-death valuation, due within 28 days, or an estimate with its basis.
Two tools help with the bill. A withholding notice freezes up to half of a beneficiary’s entitlement for 15 months after the month of death. The Pensions Direct Payment Scheme sends tax straight to HMRC, in exact sums of at least £1,000, within 35 days of a valid notice. Tax falls due at the end of the sixth month after death, then interest runs.
Who Escapes the Charge?
Money left to a spouse or civil partner stays exempt, as does charity money. Death-in-service lump sums are excluded outright, along with dependants’ scheme pensions and joint-life annuities bought alongside your own.
The Access Age Rises to 57 in 2028
The normal minimum pension age is 55 today in the UK. From 6 April 2028 it becomes 57, alongside the state pension age moving to 67. The switch is overnight: a 55th birthday on 5 April 2028 buys access, one day later does not.
Were you born on or before 6 April 1971? Nothing changes. Born between 6 April 1971 and 5 April 1973? You have a window from your 55th birthday until 5 April 2028, or you can wait until you turn 57. Born after 5 April 1973? Age 57 is your earliest date.
Some savers keep a protected pension age, usually where they held rights in a scheme on 3 November 2021 and had an unqualified right to draw before age 57. Guidance from LITRG stresses that drawing before the minimum age without an exemption creates an unauthorised payment, which is taxed at 40% or more.
Firefighter, police and armed forces schemes are not affected by the increase. Sportspeople, ballet dancers and divers have long-standing exemptions from this rule. Serious ill health can unlock a pot early, with medical evidence that life expectancy is under a year.
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What Has Not Changed
You may still take 25% of each pot tax-free, subject to the £268,275 lump sum allowance for 2026/27. The lump sum and death benefit allowance stay at £1,073,100. Rachel Reeves ruled out cutting tax-free cash at the Autumn Budget 2025.
Options remain cash, an annuity for guaranteed income, or flexi-access drawdown. After taking tax-free cash, you can generally leave the remaining pension invested, use it through drawdown, or use it to buy an annuity, depending on your scheme and circumstances. Shopping around through the open market option, explained on MoneyHelper, often lifts annuity income.
Age 75 Still Matters
Analysis from Fidelity International explains why this birthday counts. Tax relief on personal contributions stops, and many schemes refuse further payments. If you die before 75, beneficiaries usually pay no income tax on inherited funds. Die at 75 or later, and they pay tax at their own rate, with inheritance tax added from April 2027.
Should You Withdraw Early?
Tempting, but rarely wise. Guidance from Trueman Brown warns that rushing withdrawals can create tax costs that need never have arisen.
Anything above the tax-free portion is taxed now at your marginal rate, perhaps 40% or 45%. Flexible access also drops your yearly contribution limit to the £10,000 money purchase annual allowance. If your estate sits below the thresholds, withdrawing simply moves sheltered money into a taxable pot.
Sensible steps cost nothing. Update your expression of wish forms, list every scheme you hold, and book a free session with Pension Wise before anything irreversible.
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Frequently Asked Questions
When do the pension withdrawal rule changes UK savers face begin?
Ans: Inheritance tax on unused pots applies to deaths on or after 6 April 2027. The access age will rise on 6 April 2028.
Will my spouse pay inheritance tax on my pension?
Ans: No. Transfers to a husband, wife, or civil partner retain their exemption, so no tax is due on death.
Can I still take 25% tax-free?
Ans: Yes. The 25% tax-free lump sum continues, capped at £268,275 across all your pensions for 2026/27.
What if I turn 55 before April 2028?
Ans: You may draw benefits before 6 April 2028. If you do not, access usually pauses until your 57th birthday.
Does the 2027 change hit money already in drawdown?
Ans: Only the unused balance counts. Income already taken, and most annuities in payment, fall outside the charge.
Who pays the inheritance tax on my pension?
Ans: Executors report and settle it, though beneficiaries become jointly liable once benefits are allocated.
Sources & References
- Fidelity International – Tax relief on personal contributions stops, and many schemes refuse further payments.
- GOV UK – Notional pension property covers unused money purchase funds, certain defined benefit lump sums and guaranteed payments still running after death.
