Pension savers are being warned about the risks of making costly errorsRory Poulter07:01, 02 Jun 2026Millions of pension savers risk surrendering thousands of pounds to tax unnecessarily as confusion surrounding retirement income choices leaves many exposed to expensive errors.‌Only 42% of adults claim they have a clear grasp of the options available when withdrawing money from their pension. Even amongst those aged over 55, the proportion rises marginally to 45%, according to research by investment specialists Hargreaves Lansdown. The alert comes as pension wealth is set to become far more vulnerable to inheritance tax (IHT) under proposed rule changes from April 2027.‌Financial specialists warn that a lack of comprehension about how pensions operate could not only result in retirees paying avoidable income tax, but also leave families facing inheritance tax bills totalling thousands of pounds. Under existing rules, any money remaining inside a pension when someone dies is typically exempt from inheritance tax.‌However, from April 2027, unused pension funds are due to be included in estates for IHT purposes, potentially exposing families to a 40% tax charge on portions of their inheritance.For a pension pot valued at £100,000, that could mean an inheritance tax bill of up to £40,000 in certain circumstances. Even a relatively modest pension fund of £7,500 could generate a £3,000 tax charge if fully exposed to the 40% rate.‌The findings were highlighted by a consumer expert at Which? Money, who cautioned that many Brits remain unclear about the retirement options available to them. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warned: "This can lead to not having enough income, potentially running out of money, or incurring huge tax bills that needn't have happened. All can have a huge impact on your standard of living, and all are avoidable."Content cannot be displayed without consentThree key methods to access your pensionRetirees with defined contribution pensions can typically access their savings from age 55, increasing to 57 from 2028.‌Most people can withdraw up to 25% of their pension tax-free, subject to a maximum tax-free amount of £268,275 across all pensions.The primary options are:Pension drawdown – allowing savers to keep their pension invested while taking income as needed.Annuities – exchanging pension savings for a guaranteed income for life.Lump sums – taking money directly from an uncrystallised pension pot, with 25% tax-free and the remainder subject to income tax.Article continues belowFinancial experts caution that withdrawing excessive amounts too soon can heighten the risk of depleting funds later in retirement, while taking substantial lump sums in one go can trigger unexpectedly hefty tax bills.Inheritance tax reforms on the horizonThe inheritance tax implications of pension planning are growing ever more significant ahead of the April 2027 reforms outlined in Rachel Reeves's Budget. At present, pensions are commonly utilised as an estate-planning tool as they can typically be passed on outside the inheritance tax net. Following the implementation of the new regulations, numerous families might have to reconsider their approach to retirement savings and estate planning arrangements.Which? advised that pension savers should thoroughly evaluate their choices and obtain professional guidance before making permanent decisions. People over 50 years old can access complimentary guidance via the Government-backed Pension Wise service, while those with more substantial pension funds may find value in regulated financial advice.