A client sat down with us recently holding a pension statement and a plan a year old. The plan said the same thing it had said for years: leave the pension alone, draw from other assets first, let the pot pass tax-free to family. Sensible advice when it was written. Now it is wrong.
In the last twelve months we have moved two long-standing clients from "don't touch your pension" to "spend the pension first." Same family, same pot, opposite recommendation. Nothing about them changed. The rules around them did.
Two shifts are rewriting drawdown planning in the UK at the same time. The first is technical: from 6 April 2027, most unused defined contribution pensions will count towards your estate for inheritance tax. The second is quieter but just as load-bearing: the 4% withdrawal rule that built a generation of retirement plans was never a UK number, and the assumptions behind it look thin in the current rate and inflation environment. If your drawdown plan was written more than a year or two ago, it may have been built for a world that no longer exists.
The first change is the April 2027 inheritance tax rule. Under the Finance Act 2026 measures, most unused defined contribution pension funds will form part of your estate for IHT from 6 April 2027. Before that date, DC pensions generally sit outside the estate and pass IHT-free to nominated beneficiaries. After it, the same pot becomes potentially chargeable at 40% on the portion above your available nil-rate bands. For an unmarried client with a £300,000 pension pot tipping their estate above the threshold, that is up to £120,000 of family inheritance previously protected and now exposed.
The second change is harder to point at because it is not a single rule. The 4% withdrawal rule was originally built on US data — US asset returns, US gilts, a 30-year retirement horizon. It became shorthand for "safe" because it was easy to remember, not because it was tested against UK pensions. Most UK financial planners now model a sustainable withdrawal rate of 3.0% to 3.5%, and even that depends on the portfolio mix, longevity assumption, and inflation profile.
Taken together these two changes invert the old logic. The pension that was the last thing to touch — because it sat outside the estate and grew tax-advantaged — is now, for many people, the first thing to spend. The withdrawal rate that supported the old plan may also have been a percentage point too generous all along. Most clients we sit with have not been told that both things are true at once, because both changes happened slowly and neither made a single dramatic headline.
The clearest way to see the inversion is to put the pre-2027 planning logic next to the post-2027 logic across the three decisions that actually drive a retirement plan: how fast you draw, how the pot is treated for tax on death, and which pot you spend first.
| Decision | Pre-2027 planning logic | Post-2027 planning logic |
|---|---|---|
| Sustainable withdrawal rate | 4% per year, US-derived rule of thumb | 3.0%–3.5% per year, UK-modelled against real portfolio, longevity, and inflation |
| IHT treatment of unused DC pension | Outside the estate, passes IHT-free to nominated beneficiaries | Inside the estate from 6 April 2027, potentially chargeable at 40% above nil-rate bands |
| Recommended spending sequence | Spend ISAs and other taxable assets first, leave pension untouched | For many clients, spend pension first, preserve ISAs and other reliefs |
The table looks neat. The conversation behind it is not. Each row is a decision that depends on your full financial picture — marital status, total estate, the relative position of every pot you hold, and the people you want to benefit. We use the table to start a conversation, not to end one. The pre-2027 column was the right answer for a long time. The post-2027 column is the right answer for more clients than not, but not for everyone.
The 2027 change does not land evenly. Married couples still benefit from the spousal exemption: a pension passed to a surviving spouse on first death remains free of IHT, and the question only arises on second death — by which point planning levers can usually be pulled. Unmarried partners and single clients lose that deferral entirely. They face the IHT charge on first death, on the full unused pot above their nil-rate bands, with no spouse to absorb it.
Childless clients sit in a different but related position. The traditional argument for preserving a pension intact was to pass it to children or grandchildren tax-efficiently. Strip out the next generation and strip out the IHT shelter, and the case for leaving the pot untouched collapses on both sides. We are seeing childless clients pull retirement spending forward — earlier travel, earlier home upgrades, earlier gifts to nieces, nephews, and charities — because the residue going to HMRC at 40% changes how they value preserving the pot in the first place.
If you are in either group, your plan needs the most careful look. The pre-2027 logic was already weaker for you than for a married couple with children. The 2027 change makes that weaker position visible. Halewood's retirement planning service is built to model the difference rather than apply a generic rule.
Most pension statements were not designed to answer the question you now need them to answer. They tell you the value of the pot, your projected income, and a charges summary. They do not tell you what happens to the unused balance on your death after April 2027, and they do not stress-test your projected withdrawal rate against current UK assumptions.
Three things to find on your statement and check against the new environment. First, the current pot value and any projected pot value at your planned retirement date — this is the figure that meets the April 2027 rule. Second, the assumed annual withdrawal rate behind any income projection: if the projection is built on a 4% draw, it is using a US starting point your UK planner is unlikely to agree with. Third, the beneficiary nomination on file — under the new rules, who inherits and how much arrives after tax will look very different from the figure your statement implies today.
If you are juggling more than one pot, the picture is harder still. Defined benefit pensions are treated differently from DC pots; old personal pensions may have death benefits that override the default rules; SIPPs sit firmly in the DC category. A consolidated view across every scheme is usually the first thing a planner builds before recommending any change in sequence. The 54% of UK adults who told interactive investor in 2025 that they plan to adjust their retirement or estate planning because of the April 2027 change are mostly responding to the headline; the work happens at statement level, not at headline level.
For most people, the right next step is not to change anything immediately. It is to find out whether the plan you have is still the plan you want. A drawdown plan written before the April 2027 measures were announced almost certainly assumes the old IHT treatment. A plan written before UK gilt yields and inflation moved in 2022–24 may also be sitting on the old 4% assumption without saying so explicitly.
A useful review covers four things at a minimum. The current pot value across every scheme. The current withdrawal rate, modelled against UK assumptions rather than the 4% shorthand. The IHT exposure on the unused balance under the April 2027 rules. And the spending sequence — pension, ISA, property, other assets — that minimises lifetime tax across your full estate, not just inside the pension.
The decision is rarely as binary as the table suggests. For some clients the right answer is still to leave the pension largely intact and use other assets first — typically married couples with significant other pots and children to benefit. For others, particularly unmarried clients with concentrated pension wealth, the spending sequence inverts entirely. The point of the review is to find out which group you are in before April 2027 arrives, while there is still time to act on the answer. Our financial planning team handles this alongside our estate planning division so the pension question and the IHT question are answered together rather than separately.
From 6 April 2027, most unused defined contribution pension funds will form part of your estate for inheritance tax. Before that date, DC pensions generally sit outside the estate and pass IHT-free to nominated beneficiaries. After it, the same pot may be charged at 40% on the portion above your available nil-rate bands.
The 4% rule is a US-derived guideline built on US asset returns and a 30-year horizon. UK financial planners more commonly model 3.0% to 3.5% as a sustainable withdrawal rate, because UK gilts, inflation patterns, and pension lifespans differ. The 4% number is a starting point for conversation, not a fixed safe rate.
For many people, yes — but it depends on your full financial picture. Spending pension first uses funds that may be IHT-exposed from April 2027, while preserving ISAs and property that already get other reliefs. The right sequence depends on your marital status, total estate, and the relative tax position of each pot. This is a decision to model with a planner, not to act on from a headline.
Unmarried partners, single people, and childless clients see the largest practical impact. Married couples retain spousal exemption on first death, deferring the IHT question to second death. Unmarried clients have no spousal deferral and lose the historical advantage of leaving the pension untouched. Childless clients often reshape spending because the residue going to HMRC at 40% changes the value of preserving the pot.
Bring your most recent pension statement, an estimate of your total estate including property and ISAs, your current withdrawal rate or planned drawdown amount, your marital status and intended beneficiaries, and any earlier advice that assumed the pre-2027 IHT treatment. A planner can model the spending sequence against the April 2027 rules and your real numbers.
The pension you spent a working life building is still the same pot. The rules around it are not. If your drawdown plan was written before April 2027 was on the calendar — and most were — it is worth asking whether the sequence still holds. The right answer for you may be unchanged. It may also be the opposite of what it was a year ago. The work is in finding out which, with the real numbers in front of you, before the date arrives.