The rush among UK pension savers to avoid being caught in the inheritance tax net is showing "no sign of slowing down," according to Royal London chief executive Barry O'Dwyer, as a major policy shift draws closer.

Starting in April 2027, pensions will fall within the scope of inheritance tax (IHT), meaning unused pension funds and death benefits will be counted as part of an individual's estate for tax purposes. The reform ends a long-standing exemption for defined contribution pension pots that had made them a favoured vehicle for passing wealth to heirs, as funds held in a pension — unlike most other assets — could be bequeathed largely or entirely free of the 40 per cent tax that applies to estate value above the nil-rate band. Combined with frozen tax thresholds that have pulled more middle-income earners into higher tax bands, the change is expected to draw thousands of additional estates into the IHT system. HMRC inheritance tax receipts have already been climbing to successive record highs in recent years, a trend the threshold freeze is widely expected to accelerate.

This anticipated shift has already driven increased activity across the pension market — a trend O'Dwyer expects to continue well beyond the policy's effective date.

"It has been happening because obviously people have known that this is coming for quite some time," he said. "I don't think we see any sign of it calming down or slowing down in any way. I think it is going to be here for the next couple of years at least."

Royal London reported new pension sales rising five per cent to £4.7bn, growth attributed to its workplace channel. O'Dwyer said the increase reflected "people having more focus on their retirement plans" alongside "consolidating old pensions." The consolidation trend itself reflects the growth of auto-enrolment over the past decade, which has left many savers holding multiple small pots from different employers.

Autumn Budget in Focus

Attention across the City is now turning to the upcoming Autumn Budget, scheduled for 28 October by Chancellor John Healey.

During Keir Starmer's tenure in Cabinet, speculation and leaks marred the run-up to the Budget, leading some pension savers to make hasty, irreversible decisions. In 2024, rumours that the tax-free lump sum limit could be reduced prompted savers to withdraw cash from the tax-free wrapper, leaving it exposed to inflation erosion and income tax in standard savings accounts.

O'Dwyer urged Healey and the Treasury team — which includes Lucy Rigby returning as City minister — to avoid speculation and instead provide clarity that allows "people to plan." He noted that "continuity in the Treasury," including the retention of Torsten Bell as pensions minister and Rigby's return, has reassured the market that policy changes introduced under Starmer will be implemented, preventing further upheaval for consumers.

Prime Minister Andy Burnham and his cabinet have not yet outlined further policy changes to the pension system beyond committing to retain the state pension triple lock.

Targeted Support Initiative

O'Dwyer also reaffirmed Royal London's commitment to its Targeted Support scheme, which offers tailored investment advice to customers. Royal London was the first provider to launch the service, designed to help close the financial advice gap — the well-documented shortfall between those who would benefit from professional guidance and those who can realistically access or afford it.

The scheme, available through the mutual's stocks and shares ISA, has supported 5,000 customers since its launch. The group is now working to extend the initiative into its pension offerings.

The Royal London chief also noted that Burnham's newly announced social care policies, combined with rising life expectancy, are likely to increase the number of people saving into pensions — making support in this market increasingly important going forward.