Reeves horror as retirees to pull billions out of pension pots over tax raid

Brits pulled a record £5billion from their pension pots after Rachel Reeves announced an end to inheritance tax exemptions, figures show. In the first three months of this year, 672,000 pensioners took the amount out of their retirement funds.

The amount was 25% higher than that taken out over the same quarter in 2024, according to HMRC. Thirteen percent more people made withdrawals. Ms Reeves said in her maiden Budget that pension pots would be subject to a 40% inheritance tax rate from April 2027.

The Chancellor is looking to raise £1.5bn by levying inheritance tax on pensions. The changes mean loved ones who inherit will have to pay inheritance tax and income tax at the marginal rate from 2027.

Former Conservative pensions minister, Baroness Altman, has warned more people would take money out of their pension pots, triggering a "pensioner poverty time bomb".

She told the Daily Telegraph the policy could end up doing as much damage to workplace pensions as former prime minister Gordon Brown's tax rate for defined benefit pensions.

Baroness Altman told the publication: "This IHT [inheritance tax] imposition will ensure more and more people - especially those who don't have massive amounts of money - will just say, 'Why on earth would I want to lose two thirds of my pension to the taxman? I'll just take it out as soon as I can'.

"Those who build up, say, between £200,000 and £300,000 over their working life are now in danger of having a real financial incentive not to keep money in their pensions for their later life and then end up in poverty."

Figures also show a 50% increase in the number of people in their 80s taking money out of their pension pots last year. The amount withdrawn by people aged 81 or older increased by 80% to £360million.

Former pensions minister Guy Opperman said pensions are taking a big hit from the Government and the consequences of the policy are clear.

He said people will save less for their pension and withdraw more, affecting their ability to pass on money. Mr Opperman urged the Government to think again.

A Treasury spokesman said: "We continue to incentivise pensions savings for their intended purpose - of funding retirement instead of them being openly used as a vehicle to transfer wealth - and more than 90% of estates each year will continue to pay no inheritance tax after these and other changes."