What the New Rules Mean for Your Retirement Planning

For many years, pensions have played an important role in both retirement planning and, in some circumstances, passing wealth to future generations. However, significant changes to the Inheritance Tax (IHT) treatment of pensions are due to take effect from 6 April 2027, meaning many individuals may need to review their existing financial plans.

While the new rules are not expected to affect every family, they could have an impact on those with larger estates or significant unused pension savings. Understanding how these changes will work can help you make more informed decisions and to help support your financial plans and continue to reflect your personal objectives.

Mark Cornes, Mortgage Broker, Financial Adviser in Bristol said:

"Many people have spent years building their pension with the expectation that it could provide financial security both during retirement and for their family afterwards. With the upcoming changes to Inheritance Tax, now is an ideal time to review your current arrangements with an adviser who can help with inheritance tax planning. I know that every family's circumstances are different, so truly personalised advice has never been more important."

What Is Inheritance Tax?

Inheritance Tax is a tax that may be payable when someone dies and leaves behind an estate above certain thresholds. An estate can include property, savings, investments and, from April 2027 in many cases, certain pension benefits.

The amount of Inheritance Tax payable depends on several factors, including:

• The total value of the estate. 
• Any available tax allowances and reliefs. 
• Who inherits the assets. 
• Gifts made during a person's lifetime. 
• The type of assets being passed on. 

Many estates do not pay Inheritance Tax because they fall below the available allowances or qualify for exemptions. However, where an estate exceeds the available thresholds, careful financial planning can become increasingly important. 

How Pensions Are Treated Under the Current Rules

Under the current rules (before 6 April 2027), many unused defined contribution pension funds are generally not included within a person's estate for Inheritance Tax purposes.

Instead, pension scheme trustees or administrators will usually consider the member's expression of wishes before deciding who should receive the remaining pension benefits. Depending on the circumstances, beneficiaries may also have Income Tax considerations, particularly where the pension holder dies aged 75 or over. 

What Is Changing From 6 April 2027?

The Government has confirmed that from 6 April 2027, most unused pension funds and pension death benefits will be included within the value of a person's estate for Inheritance Tax purposes.

This represents one of the biggest changes to pension estate planning in recent years.

The reforms will generally mean:

• Most unused pension funds will form part of the estate when calculating potential Inheritance Tax. 
• The changes are intended to apply across both defined contribution and defined benefit pension arrangements, subject to the legislation. 
• Registered pension scheme death-in-service benefits will continue to be excluded. 
• New administrative processes will apply for reporting and paying any Inheritance Tax due.

Why Are These Changes Being Introduced?

According to HMRC, the Government's objective is to ensure pensions continue to be used primarily for providing retirement income, rather than being used principally as a vehicle for passing wealth between generations without Inheritance Tax.

The reforms are intended to create greater consistency between pensions and other assets that already form part of an estate for Inheritance Tax purposes. 

What Could These Changes Mean for You?

For some people, there may be little or no practical impact.

However, individuals who have:

• accumulated substantial pension savings, 
• deliberately left pension funds untouched, 
• significant property wealth, 
• investment portfolios, 
• or other valuable assets, 

may find that their overall estate exceeds the available Inheritance Tax allowances once pension funds are included.

This does not automatically mean Inheritance Tax will be payable, but it may change how retirement income, estate planning and wealth preservation are approached.

It may also encourage individuals to review:

• how and when they access pension income; 
• beneficiary nominations and expression of wishes; 
• their Will; 
• wider estate planning arrangements; and 
• the balance between pensions, ISAs and other investments. 

The right approach will depend entirely on an individual's personal circumstances, objectives and tax position. 

Will Beneficiaries Still Need to Consider Income Tax?

The answer is not a straight yes or no, it’s a possibly.

The Inheritance Tax changes do not replace the existing Income Tax rules that can apply to inherited pensions.

For example, where a pension holder dies aged 75 or over, pension benefits paid to beneficiaries may still be subject to Income Tax under the existing rules. HMRC has published guidance explaining how the new Inheritance Tax legislation will interact with these established Income Tax provisions. 

Why Professional Financial Advice Matters

The new changes highlight why pensions should not be viewed in isolation.

A qualified financial adviser can help review your retirement strategy alongside your wider financial plans, while an Inheritance Tax specialist can advise on the specific estate planning implications relevant to your circumstances.

Together they can help you consider areas such as:

• reviewing pension beneficiaries; 
• understanding the potential impact on your estate; 
• retirement income planning; 
• investment strategy; 
• estate planning objectives; and 
• ensuring your arrangements continue to reflect current legislation. 

Professional advice can also help ensure any decisions are based on your own circumstances rather than assumptions or general commentary.

Mark Cornes, Mortgage Broker who can help with inheritance tax planning in Bristol, continued:

"The upcoming pension Inheritance Tax changes are a reminder that financial planning should evolve as legislation changes. Rather than making rushed decisions, we encourage our clients to seek professional advice so they fully understand their options and any potential tax implications. A carefully considered plan can provide greater clarity and confidence for both you and your family."

Reviewing Your Pension and Inheritance Tax Planning

Although the changes do not take effect until April 2027, reviewing your arrangements early gives you more time to consider your options.

Whether you are approaching retirement, already drawing pension benefits or thinking about how your wealth may be passed to future generations, professional advice can help ensure your plans remain appropriate as legislation evolves.

At Thomas Oliver, our experienced advisers work alongside our clients to review retirement planning, pensions and long-term financial objectives. 

Where appropriate, we can also recommend that you speak with an Inheritance Tax specialist to ensure your wider estate planning is fully considered.

---

The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested. For specialist tax advice, please refer to an accountant or tax specialist.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Pension consolidation advice is available. If you hold a Defined Benefit Pension Scheme or Defined Contribution pension with a guaranteed minimum pension or income, any advice you receive will be through a dedicated referral advice service and a specialist within our network.

Thomas Oliver UK LLP is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.

Approved by The Openwork Partnership on 05/08/2026.