In this week's blog, we begin with a simple question: Could the pension changes on the horizon be a tailwind for P2P lending and IFISA inflows? Could new habits be created within an older generation of savers & investors, flying in the face of the well-worn narratives around risk? We speculate further below.
Pensions have a perception of being a relatively sedate corner of the financial sector, with glacial movements in behaviour patterns. Still, when the rules around pensions shift, things can move fast, and pieces of those glaciers fall off, creating entirely new landscapes. In the year to 5 April 2025, tax-free pension cash withdrawals surged by roughly 60%, with more than £18bn taken out as lump sums. The catalyst for this? From 6 April 2027, most unused pension funds and death benefits are expected to fall within the estate for inheritance tax (IHT) purposes. That change flips a long-standing planning assumption and is already changing behaviour in ways that people have not anticipated. While some of that money will remain in cash or be invested in other products and assets, there is a thought experiment about what it would look like if a significant portion flowed into our sector, particularly through the Innovative Finance ISA (IFISA).
For years, defined contribution pensions had a unique advantage: broadly outside IHT, they doubled as a flexible intergenerational planning tool. The 2025 draft Finance Bill proposals mean that from 6 April 2027, most unspent pension pots and death benefits will be counted in the estate for IHT (with specific carve-outs like death-in-service benefits). That pushes pensions back toward their original purpose—funding your retirement, rather than serving as the default shelter for family wealth. Investors responded quickly. Press reports cite a 60% jump in tax-free lump sums (often called the 25% “tax-free cash”) in 2024/25, to around £18–18.1bn, as people “banked” the allowance under today’s rules.
If you’ve crystallised pension cash, you’ve swapped a well-protected, tax-sheltered wrapper (pension) for cash exposed to Income Tax on interest and to erosion by inflation...unless you re-wrap it.
Enter the ISA family, including the IFISA, which lets you hold qualifying P2P loans with tax-free interest and gains (within your allowance). The adult ISA allowance for 2025/26 is £20,000, and you can split it across Cash, Stocks & Shares and IFISA as you wish. A quick but crucial caveat: ISAs are inside your estate for IHT (spouses/civil partners benefit from exemptions and APS rules, but the general point stands). Therefore, transferring money from pensions to ISAs won’t reduce IHT exposure; it’s about day-to-day tax efficiency and investment choice, rather than inheritance tax sheltering.
So, what could spark inflows into our sector?
When rules change, psychology kicks in, and we know from history that savers value simplicity and predictability. ISAs have been around since 1999, are familiar, and their core rules are well-understood. The IFISA extends that familiarity to an income-oriented asset (P2P) inside a wrapper many investors already use. That comparative policy stability is a draw in itself. It's a relatively safe assumption to make that people who withdraw pension cash aren’t looking to day-trade; they are looking for a predictable income stream. Well-underwritten P2P loans can target regular interest payments that align neatly with monthly or quarterly spending needs, and the IFISA makes that interest tax-free. For income seekers in drawdown, that combination is compelling.
Another point of note is diversification away from market volatility in the listed market. Not everyone wants all their post-pension cash in listed equities or bond funds. Many long-term savers already have that, or have been seeking it for decades, when capital growth was the priority. Our sector adds credit exposure that doesn’t always move in lockstep with public markets. Inside an IFISA, that diversifier becomes tax-efficient. Again, it comes back to this notion of habit, and the comfort of the familiar; the ISA system is ready-made for habits; a pension pot can’t all be shifted into an ISA in one go because of the £20k annual allowance, but for many households, drip-feeding into an IFISA each tax year is a workable, repeatable habit. Some will also transfer from existing Cash or Stocks & Shares ISAs into an IFISA to accelerate the shift without using fresh allowance.
So, what conclusions can we draw so far? The 2027 IHT change to unused pensions has already nudged behaviour, triggering a rush to “bank” tax-free cash. That creates a practical problem: what to do with the money? This is a problem that ISAs, and particularly the IFISA, are well-placed to solve for income-seeking investors who value tax-free interest, diversification, and a measure of control over their lending risk.
Will all of that £18bn find its way to P2P?
Of course not.
However, with the ISA allowance refreshed each April, growing familiarity with IFISAs, and a steady pipeline of investors transitioning from accumulation to decumulation, the ingredients are in place for rising inflows. Add the FCA’s guardrails and more explicit risk warnings, and you have a maturing niche that, handled carefully, can play a sensible role in a broader retirement income plan.
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