The inheritance tax changes announced in 2024 Autumn Budget have triggered a significant shift in the advice that IFAs are providing to their clients, according to new research from Standard Life.
With pensions set to be brought into scope of inheritance tax from 2027, the research shows advisers are actively responding by re-evaluating how best to structure income for their clients in later life.
Over four-fifths (82%) of IFAs have re-evaluated the role of pensions in their clients’ plans, with one in ten (10%) undertaking a full review across their client base. Furthermore, over two thirds (69%) of IFAs have either already advised or are planning to advise their clients to increase the level of in income they take in retirement. Among those who have had such conversations, over two in five (43%) have recommended an increase in retirement income of 5% or more.
Increasing appeal of annuities
The changes to pension rules and tax allowance are also leading three quarters of IFAs (74%) to re-evaluate the role annuities play in retirement planning, and over a quarter (27%) have increased the number of annuity purchases they are recommending. This growing demand for annuities reflects the latest ABI annuity sales figures, showing a 24% increase in 2024, reaching a new ten-year high and totalling £7 billion, while Standard Life data shows a 14% increase in the average annuity premium quoted since the 2024 Budget.
Strong annuity rates have also played a role in the increasing appeal of annuities. Standard Life’s Annuity Rate Tracker shows that in 2024, annuity rates increased by 2.5% between January and September, and remained steady despite small fluctuations.
Adviser uncertainty around future pension and savings policies
However, as IFAs and their clients grapple with the latest planned changes, they also remain uncertain about the future direction of pensions and savings policies. Almost two thirds (62%) of IFAs anticipate further changes to allowances or tax rules, either in the 2025 Spring Statement or in the next Autumn Budget.
Claire Altman, managing director of individual retirement at Standard Life, commented: “The planned extension of inheritance tax to cover pension assets from 2027 has clearly had a profound effect on how IFAs are advising their clients, and the fact that such a large number are having conversations with their clients about increasing the level of income they take in retirement gives a clear signal as to how advisers are responding to these changes.
"Traditionally, advisers have used a benchmark of 4% when it comes to client pension withdrawals each year, and it is striking to see that they are now advising an additional 4% on average, with significant numbers recommending an additional 5%. In addition to increasing withdrawal rates for those in drawdown, advisers are also considering other means of taking an income and are turning to annuities in increasing numbers due to a combination of the certainty they provide and the attractive rates on offer.”
