Pension Reforms

Pension Reforms

The government’s plans to radically change how inherited pensions are taxed is poised to receive Royal Assent and become law, despite opposition from some industry groups and some public dissent.

The Finance (No. 2) Bill has made its way through the Commons and the Lords and is now in its final stages.

Under the Bill, unused pension funds will be subject to inheritance tax (IHT) at up to 40% similar to other assets for the first time from April 2027.

Quilter retirement specialist Adam Cole said: “The Royal Assent of the Finance Bill confirms beyond doubt that inheritance tax on pensions is happening. This represents one of the most significant changes to pension taxation in a decade and fundamentally alters long‑standing estate planning strategies.”

Cole said the rule change “risks creating significant complexity and administrative burden for grieving families, who could face lengthy delays as personal representatives gather valuations, submit forms and settle IHT on pension assets alongside the rest of the estate”.

“These proposals mean the process at death is likely to become more complex, with delays also anticipated in payments to non-exempt beneficiaries,” he said.

With the Finance Bill about to pass into law and the direction of travel now firmly set, pension policy holders must start reconsidering their estate planning strategies, many of which will need to be fundamentally reshaped by the inclusion of pensions within the taxable estate.

Most notably, options for mitigating IHT via pension preservation are narrowing, and policy holders will need to revisit long‑held assumptions about the order in which they draw down their assets.

This is a complicated area of financial planning, and it benefits from highly qualified and skilled advisers providing suitable guidance.

Please contact us to discuss further.

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