A warning about inheritance tax scams: safeguard your pension funds before the 2027 rule change

In 2027, pensions are anticipated to be included in estates for inheritance tax purposes; however, experts caution that savers should be cautious of schemes that seem too good to be true

Pension savers are being cautioned that the impending changes to the inheritance tax regulations pertaining to retirement pots may make them the target of a new wave of scammers.

In 2023, scammers stole an average of nearly 50,000 from each pension saver; according to the most recent Action Fraud data, over 17 million was lost overall.

There are concerns that as people attempt to avoid paying inheritance taxes on their retirement funds, these figures may increase.

Beginning on April 6, 2027, the government will include death benefits and unused pension funds in an individual's estate for inheritance tax purposes. In light of this, IHT may be owed on your pension funds upon your passing.

Scammers frequently try to steal savers' money by exploiting the uncertainty surrounding policy changes.

For instance, after pension freedoms were implemented in 2015, numerous scams surfaced. The Work and Pensions Committee discovered that while the freedoms gave pension savers access to a greater variety of investments, they also increased the likelihood of financial fraud and scams.

Advice head Claire Trott of wealth manager St. According to Jamess Place, there are comparable risks associated with the upcoming changes to the inheritance tax rules pertaining to pensions, particularly when individuals take out sizable withdrawals in an attempt to evade IHT.

"Some people may be tempted to withdraw large amounts from their pension out of fear that their families will be hit with an IHT tax bill in the future, as unused pension savings are due to be brought inside the IHT net starting in April 2027, and the legislation and communication surrounding how this will work remain vague," she said.

"This can make people more susceptible to possible scams, which is especially concerning.

"Since pension providers provide protection from scams, they are more vulnerable to fraudulent activity when savings are removed from these schemes," Trott continued.

Last year saw a post-pandemic high in the number of people taking lump-sum withdrawals from their pensions as soon as they could. Ahead of impending changes to the inheritance tax rules, experts predict that the trend will pick up speed.

The risk of scammers may increase for those who take money out without a clear plan for what they will do with it.

Someone may approach them and offer to handle their money without paying IHT; although this may seem alluring, it might be a scam.

Trott advised anyone thinking about taking money out of their pension to avoid an IHT bill to get financial advice whenever possible, particularly if they are unsure of what to do with the money.

In addition to ensuring that hard-earned pension funds are protected from fraudsters, it's critical to be prepared with knowledge about how to handle the impending changes.

Tips for spotting pension scam warning signs.

Avoid answering unsolicited calls.

In the UK, cold calling pensions is prohibited. If you get a call about your pension from someone you don't know, it's probably a scam. Don't give them any personal information or take money out of your pension at their request.

You can either end the call or report it to the Information Commissioner's Office if you can find out their phone number and company name.

Sending "free pension reviews" or "guaranteed returns" via email, text, or social media should also raise red flags.

Refrain from acting hastily.

Trott stated, "Pressuring you to take immediate action is a tactic scammers frequently employ." Before transferring funds from your pension, consult with family members or trusted advisors and take your time making decisions.

A sincere advisor will not pressure you into making a choice; instead, they will give you time to think it over.

Watch out for warning signs.

"High or guaranteed returns," "overseas investments," or schemes that look too good to be true are most likely false.

Another warning sign to watch out for is requests to move your pension into a single investment, particularly if you're receiving cash back or an upfront bonus.

Consulting reliable sources is advised.

Pension Wise and MoneyHelper, two government-backed services, are reliable resources for pension advice.

To manage your estate and to learn about the impending pension and IHT changes, it might also be worthwhile to consult a regulated financial advisor.