State Pension Chaos as Pensioners Face 6-Week Payment Delay After Rachel Reeves’ Mini-Budget

Savers are finding themselves in a bind as delays hit pension withdrawals, following Chancellor Rachel Reeves’ decision to remove the inheritance tax (IHT) exemption on pension savings from April 2027. As the fear of the new tax grab grows, pensioners have been rushing to move £7bn out of the government’s reach.

However, this has led to a serious backlog, with pension providers reportedly taking three times longer to release funds. According to reports in the Telegraph, some savers are facing waits of up to two months, as pension providers are overwhelmed by the influx of withdrawal requests. Gabriel McKeown, head of macroeconomics at Sad Rabbit, explained that there’s always a surge in pension withdrawals around the end of the tax year, but he noted that providers’ outdated processes and “considerable bureaucracy” often lead to significant delays, as reported by the Express.

Daniel Hough, from wealth manager RBC Brewin Dolphin, added that the delays were no accident. Since the announcement of the inheritance tax changes in October’s Budget, retirees have been keen to access their savings now before the tax rule change comes into effect. Hough said, “There are widespread delays for people looking to withdraw money from their pensions because providers have been inundated with requests since October’s Budget.” What would typically take two weeks now takes six, and in some cases, clients are left waiting for up to two months.

This rush to access pension funds is directly linked to the planned changes to inheritance tax, which will bring pensions within an individual’s estate for IHT purposes starting April 2027. Many people are now opting to spend their pension savings in a bid to reduce the inheritance tax hit they may face down the line.

Sales of annuities have also surged by 20% in 2024, reaching £7 billion, as more savers seek to cash in their pensions early to avoid the looming tax changes. An annuity allows savers to exchange their pension pot for a monthly income through an insurance product, effectively removing the money from the pension system and only subjecting it to income tax if it exceeds the saver’s personal tax-free allowance.

Pete Cowell, head of annuities at Standard Life, pointed out that Brits are increasingly choosing to access their pension pots now to avoid the inheritance tax changes. With all these fears swirling, it’s clear that the government’s decision has had a significant impact on the pension landscape, with many savers rushing to act before 2027.