Feature brought to you in partnership with Scottish Widows
With less than a year until unused DC pensions potentially become subject to inheritance tax, advisers face a fundamental shift in planning that goes much further than tax advice. Gareth Davies, Pension Specialist at Scottish Widows, explores the impacts, opportunities, and ultimate value that advisers can offer during this time of increasingly complex planning.
Time flies, as the saying goes – and an important milestone is fast approaching. From 6 April 2027, unused DC pensions will form part of inheritance tax (IHT) calculations. As that date draws nearer, advisers are already reassessing high level IHT planning strategies, focusing on gifting, spending, life insurance and alternative approaches to managing and preserving intergenerational wealth.
It’s a balancing act to be ready for such a big change while also keeping clients’ assets in their currently IHT efficient pensions for as long as possible.
But it goes much wider than that – because for those clients who pass away, things could get a lot more complicated from April 2027.
From tax planning to death administration
Today, dealing with a pension on death is, all things being equal, relatively straightforward. There is usually no IHT; providers handle much of the administration, and benefits are often settled and distributed reasonably quickly.
Once pensions form part of an IHT calculation, that changes overnight.
From that point on, advisers will no longer be dealing with a single point of contact process. They are going to be dealing with beneficiaries, personal representatives, probate solicitors, HMRC, multiple timelines and far greater administrative complexity. What might currently take weeks could easily stretch into months, or longer.
From an administration perspective, this is not a small adjustment. It’s a fundamental shift – with consequences for clients, their families and advisers alike.
Complexity multiplies with every pension
Because most clients don’t have a single pension. They have pensions. Years of workplace schemes, personal pensions and legacy arrangements, often with different providers, rules and documentation. Each one becomes its own multi stage process on death.
The simple reality is that the more pensions involved, the messier, longer, more painful – and more expensive – the process will become.
If a client dies post April 2027 with five or six separate pension arrangements, that is not just inconvenient, as well as potentially falling short on Consumer Duty requirements. For the people left behind and coping with the loss of a loved one, it could be overwhelming.
Demonstrating the value of advice
This is a unique opportunity for advisers to demonstrate the value of advice in advance of a seismic change.
As we head towards April 2027, advisers have a window to help clients give their families something that is rarely talked about in financial planning: a tidy legacy.
Death is difficult enough without unnecessary administrative complexity layered on top. When pensions, IHT and probate collide, the emotional and financial strain only increases. Simplifying pension arrangements where appropriate – and within FCA approved best practice around pension transfers and switching – would be one way to make an enormous difference.
- Fewer providers to deal with
- Clearer audit trails
- Simpler administration
- Faster outcomes for beneficiaries
- A future proof legacy for the client and the adviser
Legacy benefits still matter, so this isn’t about switching at any cost. But since 2006, the vast majority of pensions are likely to be straightforward defined contribution arrangements, where straightforward comparisons on cost, investments and service can be made.
In addition, ensuring pensions sit on platforms advisers believe will be fit for purpose in a post April 2027 world is no longer just a planning consideration: it is a practical and essential one, too.
The hidden impact on adviser revenue
There is another consideration that advisers need to address.
When a client dies, ongoing adviser charges stop. At present, the gap between death and pension settlement is often short enough that this doesn’t materially affect the adviser’s value proposition. But once IHT and probate extend that timeline from weeks into months (or years), advisers may find themselves doing significant work without a clear framework for how it is charged. That raises an important question that needs to be considered sooner rather than later: do advisers need a time costed value proposition around death and estate administration, in the same way probate solicitors do?
New relationships, new expectations
All of this creates a significant opportunity for advisers who are prepared and proactive ahead of next year’s IHT changes and a sizeable risk for any adviser businesses that aren’t.
For clients and their families, a well structured, thoughtfully managed – and now, most important of all – tidy legacy is one of the most tangible demonstrations of advice value.
It proves that good planning doesn’t end at death but extends into the experience – and the people left behind – measured not just in tax efficiency, but in peace of mind. A truly intergenerational value proposition.
About Gareth Davies
Pension Specialist, Scottish Widows
Gareth Davies is the Pension Specialist for Scottish Widows, dealing with technical and legislative aspects of both corporate and individual pensions. Gareth has over 30 years’ experience in the life and pensions industry working for major product providers, and over 20 years’ experience as a pensions specialist. Gareth regularly speaks at industry and trade events and he is a Chartered Financial Planner, a Fellow of the Personal Finance Society and holds the Investment Management Certificate.
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