We’ve reviewed plenty of suitability files over the years that say some version of the same thing: the pension sits outside the estate, so it is the last pot to draw from in retirement and the first one left alone.

That way of thinking became especially embedded after the pension changes introduced from 2015, when pensions became much more attractive from an estate-planning point of view. So although the 2027 changes are significant, this is not entirely new territory. In some ways, pensions are being pulled back into an IHT conversation they have increasingly sat outside of for the last decade.

From 6 April 2027, most unused pension funds and pension death benefits will be brought into the value of a deceased person’s estate for inheritance tax purposes. Personal representatives will be responsible for reporting and paying any IHT due, while pension scheme administrators will also have new information-sharing and payment responsibilities. The main reform is now legislated for, although HMRC is still publishing the practical detail and guidance ahead of implementation.

That is the headline everyone knows. The bit I think is more interesting is what happens next.

 

The part nobody really signs up for

At the moment, pension death benefits often sit outside probate and personal representatives may have very little to do with them. From April 2027, that changes quite significantly. The person administering the estate may need to contact pension schemes, establish what pension benefits exist, obtain values, work out whether any of those benefits are exempt, complete the IHT account where one is needed, and make sure the right amount of tax is paid.

That person is quite often a spouse, an adult child or a friend who agreed to be executor years ago and probably did not imagine they would one day be dealing with HMRC and several pension providers at the same time. HMRC’s latest technical note gives more detail on how that process is expected to work. Pension scheme administrators will generally have 28 days to provide core information once they receive a valid request, with separate timings applying where beneficiaries have not yet been decided.

There is also a new withholding mechanism. If the personal representative reasonably believes IHT may be due, they can ask the scheme to withhold up to 50% of the relevant pension death benefit for up to 15 months after the end of the month in which the member died. Where a valid Pensions Direct Payment Scheme notice is served, the scheme administrator has 35 days to make the payment to HMRC.

None of that is impossible, but it is not exactly intuitive either, especially if you have never administered an estate before.

 

The tax is one thing. The admin is another.

I think that is the bit advisers need to get ahead of. The tax position is relatively easy to explain. The process is messier. A client may have several pension schemes, old workplace arrangements, a SIPP, expression of wish forms that have not been looked at for years, and beneficiaries spread across different parts of the family. Their executor may not even know all of those pensions exist.

That is why this feels like a review conversation rather than something to leave until 2027. Who is nominated to receive the pension? Does that still make sense? Does the executor know where the pensions are held? Does the wider retirement plan still assume the pension will be left untouched because it sits outside the estate?

Those are fairly simple questions to ask now. They may be much harder questions for somebody else to answer later.

There is also an important interaction with income tax. The rules are being designed so that, where IHT has been paid on pension benefits, the same slice of benefit should not effectively suffer tax twice. HMRC’s technical notes set out how IHT and income tax are intended to interact and how beneficiaries may be able to recover income tax where appropriate.

That is sensible in principle. In practice, it may still become quite complicated where benefits are split between several beneficiaries, paid in different forms or taken over more than one tax year. Again, not something most personal representatives are going to be familiar with.

 

This is happening

There was a lot of pushback when the change was first proposed, but the main reform is now in legislation and the new regime applies to deaths on or after 6 April 2027. HMRC is still publishing secondary legislation, guidance and practical materials, so some of the process detail will continue to develop between now and then.

For planning purposes, though, April 2027 is not something I would treat as speculative anymore. It is coming.

 

Why I think this belongs at the next review

There are advisers who are already very much on top of this. We are seeing firms actively reviewing pension nominations, retirement income strategies and wider IHT planning with clients now, rather than waiting for April 2027.

But we are also still hearing versions of “we’ll deal with that next year”, and that is the bit I would be wary of.

There is no need to turn every annual review into a full IHT exercise, or start changing perfectly sensible plans simply because the rules are moving. But expression of wish forms written years ago may need another look. Retirement strategies built around leaving the pension untouched until last may need reconsidering. Clients may also want to think about whether the person administering their estate actually knows what pension arrangements exist and where they are held.

None of that needs to wait until 2027. It is really about checking whether the assumptions sitting behind the plan today will still make sense under the rules the client is heading towards.

For me, the most useful thing an adviser can do now is make sure the conversation has happened and the file shows the client understood what is changing. Because the tax calculation is not the bit I would worry about most. It is a grieving spouse or adult child finding a pension scheme they did not know existed, with a deadline already running, trying to work out what HMRC needs from them.

That is the bit worth getting ahead of.

 

Where this leaves advisers

The point is not to turn every annual review into an IHT exercise. It is simply to make sure the assumptions sitting behind the retirement plan and the suitability file still make sense under the rules clients will actually face.

If this is something you are starting to think through with clients, we are always happy to be a second pair of eyes. You can read a little more about our tax-efficient investment support and wider suitability consulting support if useful, or just get in touch if you want to talk a case through.