A new snap survey from the leading workplace pension provider Penfold has found that 74% of savers are unaware that their pension pots will become subject to inheritance tax in 2027. The new findings suggest that some savers may not yet have reviewed their retirement or estate planning following the new inheritance tax reforms, despite the incoming deadline.
In 2024, the government announced that from the 6th of April 2027, unused pension funds will be included in the deceased’s estate for UK inheritance tax. However, the reforms could change in the future under the new Labour government led by Prime Minister Andy Burnham and Chancellor John Healey.
Most unused pension funds have generally fallen outside inheritance tax but will now fall within it, and with the standard rate set at 40% on estates exceeding the £325,000 nil-rate band, savers need to be aware of the changes soon to come.
The incoming reforms represent a significant change in pension policy. Before the reforms, pensions were a good option for helping to mitigate inheritance tax, meaning unused savings could be passed to loved ones outside a person’s estate.
“The new rules that are set to come into effect do reduce one of the major estate-planning advantages of pensions, but that being said, pensions remain one of the most tax-efficient ways to save for retirement.
“For the majority of savers, the possible impact will be limited as inheritance tax only applies where an estate exceeds relevant thresholds.
“Despite the incoming changes, pensions remain valuable to savers as they still offer income tax relief on contributions, tax-efficient investment growth, employer contributions, National Insurance savings through salary sacrifice, and continue to offer significant tax advantages for retirement saving.
“Nevertheless, while the tax advantages for retirement savings remain the same, the new inheritance tax reforms have reduced one of the tax advantages associated with leaving pension savings untouched later in life. Regardless of the reforms, keeping beneficiary nominations up to date remains important to help pension providers understand your wishes.
“The incoming inheritance tax changes may make pensions look slightly less attractive as an estate planning tool. But they still hold considerable value as a retirement saving vehicle, as tax reliefs and other benefits like salary sacrifice remain the same for now,”
Chris Eastwood, Co-Founder and CEO of Penfold, said
