Britain is seeing a surge in life insurance purchases as savers prepare for Labour’s inheritance tax changes on pensions.
The policy, first announced by former chancellor Rachel Reeves in her 2024 Budget, will take effect from April next year.
The move will bring unused pension pots and death benefits within the scope of inheritance tax for the first time.
Royal London, the UK’s largest life and pensions mutual, said demand for life insurance has risen sharply as customers look to offset the additional tax burden.
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The firm recorded £1.8billion of net inflows in the first half of 2026, while assets under management climbed to a record £43.6billion.
Chief executive Barry O’Dwyer said more customers are now taking out life insurance specifically to cover potential inheritance tax liabilities created by the reforms.
“It doesn’t take that much, if you’re a small‑business owner and you have a pension pot built up, to be tipped over the thresholds,” he said, warning the consequences could be significant for many families.
“For a lot of those sorts of families, the worst‑case scenario is having to sell the business to pay the inheritance tax bill,” he said.
Many savers are now seeking professional financial advice ahead of the changes. “A lot of advisers will recommend taking out life insurance to effectively pay your tax bill.”
With Chancellor John Healey due to deliver his first Budget on October 28, Mr O’Dwyer urged the Government to provide clarity.
“What we would love is some certainty in the run‑up to the Budget so that people don’t make decisions that they subsequently regret.”
His comments follow the uncertainty surrounding Labour’s second Budget in November 2025, when speculation over possible changes to tax‑free lump sums prompted savers to withdraw billions from their pensions.
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Last week, Royal London joined Standard Life, Hargreaves Lansdown and AJ Bell in calling on Mr Healey to publicly rule out changes to tax‑free cash entitlements, warning that continued speculation risks creating a “damaging cycle of uncertainty”.
Royal London also reported shifting investment behaviour among customers.
Its money market fund, one of the largest in Britain, has grown rapidly as investors move money out of equity markets.
Mr O’Dwyer said the trend reflects concerns about a potential artificial‑intelligence‑driven market bubble.
“There’s a little bit of nervousness about overheated markets and so some customers want to keep some money in short‑term deposits,” he said.
He added that savers are also trying to make the most of current market conditions.
“There’s a little bit of customer nervousness, but also a little bit of savvy behaviour by customers trying to figure out how they can generate the best return on their money.”
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