This Pension Awareness Week (15-19 September) is a good opportunity to look beyond retirement income and investment performance and focus on a question that has become increasingly important: how could the Inheritance Tax (IHT) changes affect your retirement and your family?
The government has announced plans to bring most unused pension funds and death benefits within the scope of IHT from 6 April 2027. For many people, this could represent one of the biggest changes to pension and estate planning in recent years.
What is changing?
Historically, defined contribution pensions have often been viewed not only as a way to fund retirement but also as a useful estate planning tool because they generally sat outside an individual’s estate for IHT purposes.
Unused pension funds could be included when calculating the value of an estate on death. This means some families who previously expected pension savings to pass outside their estate could find more of their wealth exposed to IHT.
The changes are intended to ensure pensions are used primarily to provide retirement income rather than as a tax-efficient way of passing wealth between generations.
Does this affect everyone?
Not necessarily. The changes may be particularly relevant if you have built up a substantial pension fund, own property alongside other savings and investments, or hope to leave part of your pension to your children, grandchildren or other beneficiaries.
The standard IHT nil-rate band remains £325,000, and additional allowances may be available in certain circumstances, including the residence nil-rate band when passing property to direct descendants. Married couples and civil partners may also be able to transfer unused allowances between themselves.
The key point is not to panic. It is simply to understand how the new rules could affect your own situation.
What should you be doing now?
Pension Awareness Week is a useful reminder to review the basics before making any decisions.
Ask yourself:
- Do you know the current value of your pension savings?
- Are you drawing income from your pension in the most tax-efficient way?
- Have you considered how your pension fits into your wider estate planning?
- Have your wishes for passing on wealth changed in recent years?
- Do you understand how the changes might affect your family?
For many people, the right response is not immediate action, but greater awareness and better planning.
Why does advice matter?
The changes will not affect everyone in the same way. The right approach depends on your pension arrangements, other assets, family circumstances and long-term objectives.
We can help you understand whether the rules are likely to affect you, review your retirement income and estate planning strategy and explore options such as pension withdrawals, gifting strategies and tax-efficient wealth planning.
Pension Awareness Week is the perfect opportunity to start that conversation. If you’d like to understand what the pension IHT changes could mean for you and your family, your Finli planner can help you review your options and plan ahead with confidence.
