Pense
From the April 2027 inheritance tax changes to rising living costs and shifting withdrawal rate research, there are compelling reasons why retirees in drawdown are revisiting their plans in 2026.
A growing number of retirees who set up pension drawdown plans several years ago are now seeking to review them. Some are discovering that their original withdrawal rates are no longer sustainable. Others are responding to significant changes in the tax and regulatory landscape. And many are simply realising that a drawdown plan set up at the point of retirement needs to evolve as circumstances change.
Here is what is driving this trend, and why a drawdown review may be one of the most important financial steps you can take in 2026.
The Inheritance Tax Change Is Prompting Urgent Reassessment
Perhaps the single biggest catalyst for drawdown reviews right now is the forthcoming change to inheritance tax (IHT) and pensions. From April 2027, most unused defined contribution pension funds will be brought within the scope of inheritance tax for the first time. Previously, an unspent drawdown pot could be passed on to nominated beneficiaries free of IHT, one of the most compelling reasons many people chose drawdown over an annuity in the first place.
Under the new rules, pension funds will be aggregated with the rest of a person's estate when calculating IHT liability. Given that IHT is charged at 40% on the value above the nil-rate band, and that beneficiaries drawing from an inherited pension also face income tax, the combined effective tax rate on a large inherited pension could exceed 60% in some cases.
For those who built their retirement income strategy around leaving their pension pot to family, this change fundamentally alters the calculation. Drawdown reviews are helping people understand whether adjusting their withdrawal rate now, spending down more of the pension during their lifetime, makes more financial sense than preserving the pot for inheritance purposes.
Withdrawal Rates Need Regular Checking
When most people enter drawdown, they select a withdrawal rate based on what their pension pot can sustain at that point in time, taking into account projected investment returns, life expectancy, and other sources of income. But markets move, life expectancy assumptions evolve, and personal circumstances change.
Research published in early 2026 by Morningstar UK suggested that the highest safe starting withdrawal rate for a new retiree drawing from a balanced investment portfolio over a 30-year horizon sits at around 3.7% to 3.9%, below the widely cited "4% rule" that many plans were built around. For those who began drawdown during the low interest rate years of the late 2010s or early 2020s, their original projections may need to be revisited.
Equally, for those who retired more recently, higher gilt yields mean annuity rates have reached levels not seen since around 2010. This is making some drawdown clients reconsider whether converting part of their pot to an annuity, creating a guaranteed income floor, might provide better protection against the risk of outliving their savings.
The Cost of a Comfortable Retirement Has Risen
Research from Pensions UK (formerly the Pensions and Lifetime Savings Association) found that the annual cost of a comfortable retirement for a single person rose to £43,900 in recent data, up from previous years and significantly ahead of where many retirement income projections were set. For those drawing a fixed or lightly adjusted income from their pension, rising living costs can silently erode financial security over time.
A drawdown review offers the opportunity to sense-check whether the income being drawn is still meeting actual spending needs, and whether the investment strategy within the pension is sufficiently positioned to deliver real-terms growth over what could be a 20- to 30-year retirement.
State Pension Age Changes Are Affecting the Maths
The State Pension age is currently 66, rising to 67 between 2026 and 2028, with a further rise to 68 under current legislation. For those who retired before reaching State Pension age, their drawdown pot has often been used to bridge the gap, drawing a higher income early in retirement with the expectation that State Pension income would reduce the need for drawdown later.
The full new State Pension for 2025/26 stands at approximately £11,973 per year. Once in payment, this sum uses the majority of the personal allowance, meaning that drawdown income on top of the State Pension becomes taxable almost immediately. Many people who modelled their drawdown strategy before the State Pension began are finding that their effective tax bill in retirement has increased, and that a recalibrated withdrawal plan could reduce the amount lost to income tax over the longer term.
Pension Access Age Is Changing in 2028
The minimum pension access age, currently 55, will rise to 57 from April 2028 for most savers. While this change does not affect those already in drawdown, it is prompting a broader reassessment of retirement planning for those approaching retirement. For anyone currently drawing down early and relying on their pension as their primary income source, understanding how this interacts with other retirement assets and the State Pension is increasingly important.
Drawdown Is Not a "Set and Forget" Strategy
This is perhaps the most important point. Pension drawdown was never designed to be a decision made once and then left untouched. Unlike an annuity, which provides a guaranteed income for life without requiring any further management, drawdown requires active stewardship. Investment performance, withdrawal rates, tax efficiency, and changing legislation all need to be reviewed on a regular basis.
The FCA and the government's own Pension Wise guidance service have consistently highlighted the risk that retirees in drawdown are not reviewing their arrangements often enough. A drawdown review with a regulated financial adviser is not a sign that something has gone wrong, it is simply good practice, and increasingly, it is revealing that meaningful changes could make a material difference to long-term retirement security.
If it has been more than a year since your drawdown arrangements were last reviewed, now is a sensible time to take stock.
This article is for information purposes only and does not constitute regulated financial advice. Pension and tax rules are subject to change. Please seek personalised advice from a qualified financial adviser before making decisions about your pension income.