Almost three-quarters of savers unaware pensions could face IHT from 2027

Almost three-quarters (74 per cent) of pension savers are unaware that unused pension funds could become subject to inheritance tax (IHT) from April 2027, research from Penfold has revealed.

Penfold said the findings suggested many savers may not yet have reviewed their retirement or estate-planning arrangements ahead of the proposed changes.

The findings point to a higher level of uncertainty than research published by Hargreaves Lansdown in June, which found that 32 per cent of people had no idea how the forthcoming pension and IHT changes would affect them.

Under the reforms first announced in 2024, most unused pension funds and death benefits would be brought within the scope of IHT.

This would represent a significant change from the current position, under which unused pension savings have generally fallen outside a person’s estate for IHT purposes.

The standard IHT rate is 40 per cent on the value of an estate above the £325,000 nil-rate band, although the amount ultimately payable depends on an individual’s circumstances and the allowances available.

Penfold noted that the reforms could still change before implementation under the government led by new Prime Minister, Andy Burnham, and Chancellor, John Healey.

The provider said that pensions had traditionally been viewed as an attractive estate-planning vehicle because unused savings could often be passed to beneficiaries outside the deceased’s estate.

However, it stressed that pensions would remain one of the most tax-efficient methods of saving for retirement even after the proposed reforms.

Penfold co-founder and chief executive officer, Chris Eastwood, warned that the changes would reduce one of the principal estate-planning advantages associated with pensions.

"That being said, pensions remain one of the most tax-efficient ways to save for retirement,” he acknowledged.

“For the majority of savers, the possible impact will be limited, as inheritance tax only applies where an estate exceeds relevant thresholds.”

Eastwood highlighted the continuing benefits of pension saving, including income tax relief on contributions, employer contributions, tax-efficient investment growth and National Insurance savings through salary sacrifice.

However, he said the proposed changes could affect decisions over whether to leave pension funds untouched later in life.

“Regardless of the reforms, keeping beneficiary nominations up to date remains important to help pension providers understand your wishes,” he continued.

“The incoming IHT 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.”

This article originally appeared in our sister publication Pensions Age.

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