Historically pensions have played a vital role in estate planning because they typically sat outside of Inheritance Tax (IHT). That is about to change.
From 6 April 2027, unused pension funds and most pension death benefits will be brought into IHT calculations. With less than 12 months to go, the window to plan effectively is narrowing, and the decisions you make now could have a significant impact on what your family ultimately inherits.
This is not something to put off. Early planning will give you far more flexibility than waiting until the last minute.
What’s changing and why it matters now
At present, most pensions benefit from favourable IHT treatment. In many cases, unused pension funds are not counted as part of your estate when you die. This has made pensions a powerful tool for passing on wealth tax‑efficiently.
All this will change from April 2027 when the value of your pension at the time of your death will be brought into your estate’s IHT calculation for the first time. This will increase an average estate’s tax liability by £34,000* and may significantly reduce the wealth you pass on.
How this may impact your estate:
- More estates could fall into the remit of IHT for the first time
- Existing IHT bills could increase significantly
- Beneficiaries may receive less than you intended
April 2027 is closer than it feels – with this change fast approaching, delaying action could limit your options and lead to rushed decisions later on.
The potential impact on your family
The inclusion of pensions in IHT calculations could reduce the value of the inheritance your loved ones receive. IHT is normally charged at 40% of the value of an estate above available allowances, including the £325,000 Nil Rate Band per person.
There may also be practical consequences. Personal Representatives  will need to assess the IHT payable before pension death benefits are released, so beneficiaries could face longer waiting times before accessing funds. For families relying on that money, delays could add unnecessary stress at an already difficult time.
These changes make it essential to review how and when you use your pension going forward.
Why retirement and estate planning must be reviewed together
For many people, pensions are both a source of retirement income and a key estate planning tool. The new rules mean these two areas can no longer be considered in isolation. You may need to consider:
- How much of your pension you plan to withdraw during retirement
- Whether alternative income sources could be more tax efficient
- How your wider estate is structured
How Origen can help you
Financial advice can help you decide on the best course of action for your own circumstances. At Origen, we’ll talk you through your retirement and estate planning strategies:
- Review your pension arrangements – Understanding the value of your pensions and how they may grow over time.
- Explore IHT and estate planning options – Gifting during your lifetime or using trusts may help reduce the value of your estate for IHT purposes. These strategies have strict rules and long‑term implications, so advice is essential to ensure they are appropriate for your circumstances.
- Prepare your beneficiaries – Clear communication helps manage expectations and reduces the risk of confusion or disputes later on. Making your intentions known now can make a meaningful difference.
- Provide tailored financial advice – Your Origen adviser can explain how the new rules apply to you, model different scenarios, and recommend strategies that align with your retirement goals and your wish to protect your financial legacy.
Whether it’s revisiting your retirement income strategy, exploring tax‑efficient alternatives, or updating your estate plan, Planning ahead now will give you the confidence that your arrangements are aligned with the new rules.
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