Small pot consolidation could ease ‘admin headache’ of IHT pension changes

Pension savers have been encouraged to consolidate scattered defined contribution (DC) pensions to ease the administrative burden for their families when the new inheritance tax (IHT) rules come into effect in April 2027.

Unused pension pots will be liable to IHT charges from April 2027, following the Finance (No. 2) Bill receiving Royal Assent in March.

According to Evelyn Partners, the forthcoming changes are already having an impact, with some pension savers deciding to take their tax-free lump sum, draw down more heavily on their pension pots, or buy annuities.

However, the firm suggested that consolidating small pots was another option.

Evelyn Partners pensions technical specialist, Andrew King, said: “Pension consolidation can be a good move for a number of reasons, but the inclusion of unused pension pots in IHT liabilities will add extra urgency for many families.

"This is because having several, scattered defined contribution pension pots could land their personal representatives with a real admin headache, interest charges from HM Revenue and Customs and potentially a lot of stress.”

The government recently rejected the House of Lords’ recommended extension of the initial IHT payment deadline for families from six to 12 months after bereavement.

King continued: “The way the rules have been drawn up for IHT from next April, the personal representatives will have to go to each pension provider and try to access funds within the six-month deadline from death for the payment of IHT.

"Where there are several pension pots with different providers, this could not only prove a heavy administrative burden but also potentially hit the estate with interest charges.”

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