Should You Draw Down Your Pension Before April 2027?
The question is not whether everyone should draw down before April 2027. It is whether you should. The answer depends on three things about your specific numbers. Here is the framework, with worked examples for households who benefit and households who do not.
You have read a few headlines about the April 2027 Inheritance Tax change. You have a workplace pension you have not looked at properly in years. The number on the last statement was bigger than you expected. You are now wondering whether you should be doing something before April.
For most people reading this, the answer is no. The change is real, the deadline is real, but the action that fits the headline is wrong for the majority of households with a workplace DC pension. Most people do not need to do anything before April 2027. They need to know they do not need to do anything, and then get on with the rest of their financial life.
For some people reading this, the answer is yes. They have a specific combination of numbers that makes acting before April the right call, and waiting would cost their estate a six-figure tax bill they could have avoided with one decision this year.
This piece is for both groups. It walks through who benefits, who should wait, and the three questions that decide which group you are in.
Before You Touch Anything
Drawing pension money out early is irreversible in most cases. Once you crystallise tax-free cash and move it into a bank account, you cannot put it back into the pension wrapper. Income tax on the rest of the drawdown is also unavoidable. The decision below is for people whose numbers show a clear IHT saving that outweighs the income tax cost of crystallising. If your numbers do not show that saving clearly, the answer is to wait.
The Three Questions That Decide
There is no general answer to "should I draw down before April 2027." There is a specific answer, built from three questions about your numbers. Answer them honestly and the decision is usually clear.
Question 1: Is your DC pension pot worth £500,000 or more?
Not the projected retirement value. The current transfer value, the number your provider shows on the portal right now. The threshold matters because below it the pension is unlikely to push your estate over the £1 million combined nil-rate band allowance for a couple, even when combined with a property and other savings. Above it, the pension becomes the single largest lever in your estate and the lever that the April 2027 change pulls hardest.
Question 2: Will your combined estate, including the pension, exceed the £1 million nil-rate band allowance at the second death?
For a couple, add the property value, both pensions, ISAs, savings, investments, and any life insurance that pays into the estate. Subtract the mortgage and any debts. If the number is over £1 million, the pension is creating real IHT exposure. If it is comfortably under £1 million, the pension is part of a balanced estate that is not materially caught by the change.
Question 3: Have you updated your expression of wishes form in the last five years?
The form tells your pension provider who should receive the death benefit. Most people filled it in once when they started the job and have not touched it since. After April 2027, the form still works, but the tax treatment of what it nominates changes. If you have not updated it, or if your circumstances have changed since you last filled it in (new partner, more children, divorce), the answer to question 3 is no. That makes the timing of any drawdown decision more sensitive.
How to read the answers
- - All three "yes" answers: drawing down before April 2027 is likely worth modelling seriously.
- - Two "yes", one "no": the decision depends on which "no" you answered. A small pension with a large estate still leaves a problem elsewhere.
- - One "yes", two "no": the urgency is lower. You have time to plan properly rather than rush a decision.
- - All three "no": the change is not yet a problem for you. Park it for now. Check again in two to three years.
Who Benefits From Acting Before April
Drawing pension money out early costs income tax on the taxable portion and reduces the tax-efficient wrapper the pension sits in. It only makes sense when the IHT saving from drawing the money out outweighs those costs. Three profiles fit.
Profile 1: The high-earner with a single large DC pot
You are 58 to 65, you have a workplace or personal pension of £700,000 or more, you have Isas and savings of £300,000, and your home is worth £900,000 or more. Combined estate at the second death for a couple: £2.6 million. The pension alone is over half the estate. Drawing it down before April lets you shrink the IHT base by hundreds of thousands of pounds. For someone in this position, the income tax cost of crystallising the pension now is the cheaper bill by a margin.
Profile 2: The couple approaching the taper threshold
You are 55 to 70, both of you have built up DC pensions over long careers, your home is worth £1 million or more, and the combined estate is pushing £2 million from below. Once it crosses £2 million, the nil-rate band tapers away at £1 for every £2 of estate value over £2 million. Drawing one or both pensions down before April 2027 can keep the estate below the taper threshold and preserve the full £1 million allowance. The saving can be six figures.
Profile 3: The person with an outdated expression of wishes
You are 50 to 65, your pension is over £400,000, and the form you filled in ten or fifteen years ago still names an ex-spouse, a sibling who has since died, or simply leaves the nomination to "my estate." After April 2027, the wrong nomination can leave your family with a tax bill on top of the wrong distribution. For people in this position, crystallising the pension, taking the 25% tax-free lump sum, and updating the form on the remaining drawdown pot is a cleaner reset than waiting and hoping the form gets reviewed at claim time.
Who Should Wait
Drawing down early is not the right call for everyone. Three profiles should hold off and let the new rules apply at the second death, where the tax cost is lower than crystallising now.
Profile 4: The small DC pot
Your pension is worth under £200,000. Even combined with a property and savings, your estate is comfortably under £1 million for a couple. The IHT bill from the new rules is small, often zero. Drawing down now means paying income tax on the taxable portion and giving up the tax-efficient wrapper. The cost is larger than the saving. Wait.
Profile 5: Sufficient nil-rate band headroom
Your combined estate including the pension is under £1.5 million for a couple and the residence nil-rate band applies in full. The pension moves inside the estate in April 2027 but you still pay no IHT, because the excess above the £1 million combined allowance is below the threshold where tax actually applies. Crystallising now crystallises a tax bill for no IHT saving. Wait.
Profile 6: Defined benefit scheme members
You have a final salary or career-average pension as your main scheme. The April 2027 change largely does not affect DB pensions. You cannot draw down a DB pension in the same way you can a DC pot. The decision framework above does not apply to you. Wait, and review your overall IHT position with a focus on assets the change does affect.
The Numbers, With Real Examples
Two households, similar ages, very different decisions. The framework above gives the answer once the numbers are honest.
Household A: Mark and Claire, both 60
- - Mark's workplace DC pension: £620,000
- - Claire's workplace DC pension: £180,000
- - Home: £850,000, mortgage paid off
- - ISAs and savings: £220,000 combined
- - Combined estate including both pensions at the second death: £1,870,000
- - Combined nil-rate band allowance (with RNRB): £1,000,000
- - Excess above allowances: £870,000
- - IHT at 40%: £348,000
Mark and Claire are in Profile 1 and Profile 2 at once. Their estate is well over the £1 million allowance and approaching the £2 million taper threshold. If Mark draws down £250,000 of his pension before April 2027, the estate at the second death drops to £1,620,000. The IHT drops from £348,000 to £248,000. The income tax cost of drawing the £250,000 down is roughly £50,000. Net saving: £50,000 of IHT saved for every £1 of income tax paid.
Household B: David, 58, single
- - David's workplace DC pension: £310,000
- - Home: £480,000, mortgage paid off
- - ISAs and savings: £95,000
- - Combined estate including the pension at his death: £885,000
- - Nil-rate band allowance: £325,000
- - Excess above allowance: £560,000
- - IHT at 40%: £224,000
David is in Profile 5. His estate including the pension is over £500,000, so the new rules do affect him. But his pension alone is under the £500,000 threshold from Question 1, and crystallising early would cost him income tax on the taxable portion for an IHT saving he does not need urgently. The better play for David is to wait until April 2027, then plan the drawdown order properly under the new rules. Drawing down now is the wrong answer for his numbers.
The Cost Of Crystallising Without Thinking
Drawing down a £500,000 DC pension crystallises the full pot. The 25% tax-free lump sum is £125,000. The remaining £375,000 is taxable pension income, paid in the year it is drawn. At a marginal rate of 40% that is £150,000 of income tax in one tax year. The IHT saving for a household that did not need to crystallise can be zero. The income tax bill is not.
The Two Strategies That Actually Work
For households where the answer to all three questions is yes, the strategy is rarely "draw everything down at once." Two approaches handle most situations.
Strategy 1: Crystallise part of the pot, take the tax-free cash, leave the rest invested
Crystallise enough of the pension to drop the projected estate below the £1 million combined allowance or below the £2 million taper threshold. Take the 25% tax-free lump sum on the crystallised amount, draw the rest of the crystallised amount as taxable pension income spread across more than one tax year to manage the marginal rate, and leave the uncrystallised portion of the pot invested. This shrinks the IHT base while keeping some of the tax-efficient wrapper intact. It is the most common answer for households in Profile 1.
Strategy 2: Move to drawdown, take the tax-free cash, gift the proceeds into trust
For households with a clear seven-year horizon before they need the money, gifting into trust removes the gifted amount from the estate immediately for IHT purposes. The 25% tax-free lump sum crystallised from the pension can fund the gift. This is the more advanced answer and requires advice from a qualified financial adviser, because trust structures, the seven-year rule, and the interaction with normal expenditure out of income are technical. The headline point is that drawing pension cash before April 2027, then gifting it, achieves two reductions in the estate at once.
What This Does Not Mean
Acting before April 2027 is not the only lever, and it is not always the right one. Three things it does not mean.
- It does not mean cashing in your whole pension. Partial crystallisation is usually the right shape.
- It does not mean acting without advice. Crystallising a six-figure pension to save IHT is a regulated decision in most cases. A qualified financial adviser should model the income tax cost against the IHT saving before you commit.
- It does not mean ignoring the rest of the estate. ISAs, property, business property relief, and life insurance all interact with the pension position. A change to one asset affects the IHT calculation on all of them.
What To Do This Week
Three steps, in order. None of them involve crystallising anything yet.
Step 1: Pull your pension numbers into one place
Log in to your current workplace pension provider. Note the current transfer value. Use the Pension Tracing Service at gov.uk/find-lost-pension for any old pensions from previous jobs. Add them into one number. This is your DC pension total, the number Question 1 asks about.
Step 2: Add up the estate
Property at a current Zoopla or Rightmove estimate. Pensions. ISAs and savings. Investments. Life insurance that pays into the estate. Subtract the mortgage and any debts. This is the number Question 2 asks about, and the number the April 2027 change applies to.
Step 3: Check the expression of wishes form
Log in to your pension provider and find the form. Most providers have it under "documents" or "my details." Read what it says. If the form is missing, incomplete, names an ex-spouse or someone you would not choose today, or simply has not been touched in five or more years, that is your answer to Question 3.
One thing to do this week: Pull your pension transfer value, your partner's pension transfer value, and your property estimate into one number. That single number tells you which side of the framework you land on. If it is over £1 million for a couple or over £500,000 for a single person, the decision below is the conversation to have with a regulated financial adviser in the next three months. If it is under those lines, the change is a problem to plan for, not a problem to solve before April.
Calculate whether early drawdown makes sense for youThis is financial guidance, not financial advice. Delphina provides financial clarity tools, not personal recommendations. The figures used in this piece reflect UK Inheritance Tax rules as published and the nil-rate bands as frozen since 2009. Tax rules can change. Mark, Claire and David are illustrative, not real people, and the maths shown depends on assumptions about growth, retirement age and lifespan that will not match your situation. For your specific numbers, especially if your estate is close to or above £1 million, a qualified financial adviser can model the options properly. The Delphina tools can help you see where you stand today.
Related reading
- Pensions + Inheritance Tax: What Changes on 6 April 2027 - the primer, with the £325k nil-rate band, the £175k residence nil-rate band, who is actually caught, and the one action to take this month.
- Reordering Your Retirement Drawdown Under the New Rules - Sarah, 58, with £600k pension and £400k ISA, shows the new drawdown order and what it saves.
- Multiple pension pots: what to do with old workplace pensions - if you have three or four old pots from previous jobs, the £500k threshold from Question 1 depends on adding them up properly.
- What happens to your pension when someone dies - the four steps to claim a workplace pension death benefit, with the typical 4 to 12 week wait.
- What to do with an inheritance: the first 90 days - for households who have already received an inheritance, the new pension rules change how that money interacts with the rest of the estate.
See Whether You Should Act
Add your pensions, property and accounts. See whether your numbers land in Profile 1, 2 or 3, or whether you are in Profile 4, 5 or 6.