For many people, pensions have traditionally sat outside of their estate for Inheritance tax purposes. They are often seen first and foremost as a way to fund retirement, with any unused funds on death passing to beneficiaries free from Inheritance Tax.
However, from April 2027, planned changes mean unused pension funds and certain pension death benefits will need to be considered as part of wider inheritance tax planning. This does not mean pensions stop being a valuable way to save for retirement, but it does make now a good time to check whether your plan, death benefit nominations and retirement strategy still reflect your wider family and legacy objectives.
What is changing?
At the moment, many unused pension funds sit outside the value of someone’s estate for inheritance tax purposes, although the position can depend on the type of pension arrangements and individual circumstances. This has made pensions a useful part of retirement and legacy planning for many.
From 6 April 2027, unused pension funds and certain pension death benefits will be included when an estate is assessed for Inheritance Tax. In simple terms, this means some pension benefits will need to be counted alongside property, savings, investments and other assets.
What this means in practice will depend on your personal circumstances, including the value of your estate, your pension arrangements, who you want to benefit from your pension and what other allowances or exemptions may apply.
Why this matters for your wider plan
The changes are a useful prompt to look again at how your pension fits into your overall financial plan. Your pension may still be central to your retirement income, but you may also need to review how, and to whom, unused funds will pass to on your death.
For example, if you have been planning to leave your pension largely untouched and use other assets first, it might be worth checking whether that approach still supports your aims. If your family circumstances have changed, your pension death benefit nominations may also need reviewing.
Practical checks to consider
Reviewing your plans does not always mean making major changes. Often, it starts with a few simple questions:
- Where are all your pension pots?
- Are your death benefit nomination forms up to date?
- Does your retirement income strategy still reflect your needs now and in later life?
- Have your family circumstances changed, such as marriage, divorce, bereavement, children or grandchildren?
Keeping clear, up-to-date records can also help your loved ones and personal representatives deal with your affairs more smoothly in the future, particularly if you have built up pensions with several employers over time.
Keeping your plans aligned with your objectives
Good financial planning is not only about tax. It is about making sure your money supports you during your lifetime and is passed on in the way you intend. The planned pension changes simply make it more important to consider pensions as part of the bigger picture for inheritance tax purposes.
For some people, the right approach may be to keep things broadly as they are. For others, it may be worth looking again at how and when they draw from their pension, how other assets are used, and whether their nominations and estate planning documents are still up to date.
When to speak to us
If your circumstances have changed, or you are unsure how the upcoming changes could affect your plans, it may be worth speaking to us. We can help you review your pension arrangements, beneficiary nominations and wider retirement strategy, so they remain aligned with your family and legacy objectives.
The rules do not take effect until April 2027, so there is time to plan. Taking a calm, practical look now can help give you and your family greater clarity for the future.
To learn more about the upcoming changes, you can watch our recent webinar. We take you through what is changing and what it could mean for your financial plans.
AFP304 exp07/27
Market Commentary – Quarter 1, 2026