When Did You Last Revisit Your Retirement Plan?

Does anything ever sit still, in perpetuity? You don’t – and nor should your retirement plan.

Yes, you met your adviser, agreed your plan and felt reassured. Great. But financial plans are built on assumptions. And assumptions age.

In fact, three recent changes may have upset your plan. So, if you set everything in place before 2024, read on because you may need to revisit your plan and check it’s still appropriate.

1) Pension IHT: the biggest change in a decade

For years, there was one piece of universal financial advice: leave your pension until last.

No more.

That’s because, from 6 April 2027, your pension comes in scope for inheritance tax purposes. A new law will bring unused defined contribution pension funds and pension death benefits – SIPPs, personal pensions, workplace DC schemes – into the taxable estate for inheritance tax purposes

For estates above the nil-rate band, pension funds may face an IHT charge at 40% – and then, for beneficiaries drawing down an inherited pension after the original holder’s death past age 75, income tax at their marginal rate applies on top. In combination, this could mean a rate of 57% or more.

Advice that made perfect sense as recently as 2023 – preserve the pension, spend everything else first – may now be an expensive strategy.

In fact, we are typically talking with clients about drawing from their pension deliberately and early, spend the GIA next and preserve ISAs longest. This isn’t just a change to the plan, it’s also a change to the philosophy.

We’re urging all clients to check, or work with us to check for them.

2) Longevity: a hidden risk 

You probably know we’re all living longer. In 1994, Brits lived an average of 76 years. Now it’s 82.  

Yet that’s not the real risk. The thing that could hole you below the waterline is the range of outcomes around that average. 

Let us explain. Imagine you’re in a couple, both aged 65. You have about a one-in-four chance one of you will make it past 95. A plan to sustain your spending to just age 85 – still common in financial planning – leaves a  10 year gap in the optimistic scenario.  

The range of outcomes doesn’t stop there. Think about your future health. UK healthy life expectancy now averages around 63 years. That’s almost 20 years spent in some degree of ill health.  

This has two planning implications that are frequently missed. 

First, the period you’re healthiest and most active, and spend the most, is way shorter than many plans assume. Research shows real expenditure peaks in early retirement, falls in your mid-seventies, then rises again as care costs increase. If your plan assumes flat spending, you may have a problem. 

Second, the costs of later-life care can dwarf other planning assumptions. Now, you’ll need an average of £50,000 per year to cover residential care. This may be higher when you’re at the age you need it. Again, your plan should cover this. 

3) Gilt yields and the annuity recalculation

In 2021, annuity rates were at historic lows. A 65-year-old with a £250,000 pension pot might achieve around £9,000 per year. The case for keeping your pension invested and withdrawing flexibly was pretty clear. 

That calculation has shifted materially. 

Annuity rates for a 65-year-old have improved by 40-50% since then. The same £250,000 pot might now secure £13,000 or more. Of course, it all depends on the provider, your health and the structure of the contract.  

But there’s more to this recalculation. The post-2027 pension IHT rules exempt joint life annuities – so, a pension used to purchase a joint life annuity is no longer part of the taxable estate. If you have an inheritance tax-liable estate and a large pension funds, annuitising a portion of the pension solves two problems: it removes that portion from the IHT calculation and it provides a guaranteed income for life. 

Annuities may not be right for everyone. Flexibility matters. Health matters. Other income sources matter. But the case for at least revisiting the annuity question is now much clearer. 

4) What this means for you 

These are not peripheral changes. They affect the architecture of what a good retirement income plan looks like: which assets to draw from, in which order, at what rate and with what structure around guaranteed income. 

A good plan from as recently as, say, 2022 may now need meaningful revision. To work out if that means you, ask yourself: 

• Does it account for the April 2027 pension IHT changes? If your estate is above, or approaching, the inheritance tax threshold, the pension drawdown sequencing in your plan needs to be revisited.
• Does it model longevity honestly? A plan built to age 85 for a healthy 65-year-old is not a conservative assumption — it’s optimistic. You need scenarios to 95 and beyond.
• Has anyone reviewed your guaranteed income position in light of current annuity rates? Any stress test against 2021 rates is now well past its sell-by date.
• Does your plan show you what happens if you spend more? Retirement planning research shows people systematically underspend — denying themselves the quality of life they spent decades saving for. A good plan gives you permission to spend – as well as protect you from capital depletion.

At First Wealth, we measure wealth by wellbeing. A retirement income plan is a living framework for one of the most important financial transitions you will make. It’s not a document you file away from when you need it – your financial wellbeing matters too much for that. 

Or think of it this way, you MOT your car every year. When was the last time you MOTed your future? 

Get in touch with one of our experts on 020 7467 2700 or hello@firstwealth.co.uk. 

It is essential to carefully consider your financial situation, investment objectives, and the product’s fees and restrictions before purchasing an annuity. 

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

The Financial Conduct Authority does not regulate estate planning or tax planning. 

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.