Later life lending advice should be part of pension lump sum conversations, says Key

Key Equity Release has called for later life lending advice to be included in conversations about taking the 25% tax-free pension lump sum. 

Data from HMRC showed more than 1.27 million people accessed pension funds flexibly in the last tax year, with Financial Conduct Authority (FCA) figures highlighting a rise in tax-free withdrawals from £11.25bn to £18.01bn year-on-year. 

Key warned that using pension cash to clear mortgages is not always the most appropriate option.

Industry experts believe the increase in tax-free withdrawals is partly due to the forthcoming inclusion of unused defined contribution pension funds in estates from April 2027, which could increase Inheritance Tax bills. 

Key highlighted that taking the maximum tax-free withdrawal reduces future pension income for those stopping work and no longer contributing. 

Key has urged independent financial advisers (IFAs) and wealth managers to provide later life lending advice or refer clients to specialists to ensure a holistic approach to retirement planning. 

Will Hale, CEO of Key Equity Release, said: “The number of people taking the full 25% tax-free lump sum from pension funds is surging and the value of money released has increased by more than 60% year-on-year in the most recent figures.

“Taking the lump sum will make sense for many of those people and it is definitely the case that the inclusion of unused direct contribution pension funds in estates from next April is having a major influence on these decisions.