From 6 April 2027, most unused pension funds and death benefits will be pulled into the scope of Inheritance Tax (IHT) purposes. This means that the total value of the estate – including pensions – in excess of £325k (or up to £500k with the residence nil-rate band), will be taxed at 40%. The Government’s rationale? To stop pensions from being used as intergenerational wealth transfer tools and realign them more closely with their original purpose i.e. retirement funding.

This is a seismic shift. Today, most unused pension pots and death benefits sit outside the estate for IHT and can usually be passed on tax-free.

In reality, HM Revenue & Customs (HMRC) estimate that less than 5% of inheritable estates will be affected in the first year, with the average additional liability being £34k, and a further 38.5k estates potentially having to pay more tax than before¹. Additionally, it is important for members to understand that Death in service benefits and payments to spouses, civil partners, or charities will remain exempt.

‘Most estates will continue to have no Inheritance Tax liability after 6 April 2027.’¹

 However, this is already presenting significant advisory challenges well before the April 2027 deadline, as clients seek advice on how to mitigate against this change and manage their succession planning; and advisers are bracing themselves for more to come. They are expecting around two-thirds of clients to be affected³, with 77% advisers expecting significant increases in workloads, and roughly 40% of clients requiring plan reviews.²

But it is not just advisers who will face an increase in demand because of the impending changes. So, what should pension providers expect & how can they prepare?

Clients are already asking tough questions – should they stop contributions? Draw down early? Use trusts or gifting strategies? Providers must be ready to support members and their representatives through this transition.

Implications for Pension Providers

 Providers and administrators will need to:

• Protect members from making potentially harmful decisions. 48% advisers have had clients asking whether they should reduce or stop pension contributions considering the upcoming changes² – indicating that the change has the potential for damaging consequences if it discourages members from saving into their pensions. Providers have a role to play here and should not remain silent. They should consider their obligations under Consumer Duty to enable and support customers to pursue financial objectives and use targeted support and service messages to help mitigate against potentially harmful decisions.
•  Support personal representatives (PRs). PRs (not pension administrators) will be responsible for calculating, reporting, and paying the tax. Whilst this simplifies admin for providers when compared to the original proposals, they should support PRs (who may also be the bereaved beneficiaries) to navigate this. This should include finding out from the PR whether the deceased had a spouse or civil partner and telling them how the pension benefits will be split between exempt and non-exempt beneficiaries, to help them work out the IHT liability.
• Implement processes and systems for the new Pension Inheritance Tax Payments Scheme, enabling withholding of up to 50% of benefits for 15 months if requested. Beneficiaries who are receiving benefits subject to IHT will have the right to request that this is paid directly to HMRC via the provider (this would also make it an authorised payment and therefore not subject to Income Tax).

• Consider training needs for staff and trustees regarding the new rules. This should cover engagement, guidance, and support for both members and PRs.
• Update internal processes and enhance systems to manage new timelines, withholding requests, and beneficiary communications.

 Communication Responsibilities

 Transparency is key. Start updating member communications now (guides, FAQs, letters etc) to clearly explain the upcoming changes. This should include guidance on:

• How nominations affect IHT liability
• Options for reducing exposure (e.g., drawdown strategies)
• Exempt vs non-exempt beneficiaries and benefits (e.g. death in service benefits paid from a pension)
• Implications for non-exempt beneficiaries, explaining that IHT may be due, who is responsible for paying and that there may be the option for it to be paid directly via the provider (net of income tax).

Scheme members should be encouraged to:

• Review and update nominations. Although an Expression of Wish will not prevent IHT, it still matters for who gets the money, and a lack of one could delay payment and complicate probate.
• Consider drawing down funds earlier if appropriate.
• Seek financial advice on estate planning and alternative strategies such as trusts and gifting.

Providers could also consider offering educational resources and webinars to help members understand the implications.

Conclusion – Time to Act:

The April 2027 IHT changes are more than a tax tweak, they are a fundamental shift in pensions administration. Providers that prepare now will protect compliance, support their members in navigating these changes – maintaining confidence and strengthening trust during a period of uncertainty, and reduce distress, confusion and delays for bereaved families.

At Simplify, we partner with pension providers and administrators to:

• Audit and redesign processes for IHT readiness.
• Implement robust systems for valuations, withholding, and reporting.
• Develop clear member communications and trustee guidance.
• Train teams on regulatory changes and best practices.
• Provide risk and governance frameworks to ensure compliance and reduce operational exposure.

Our expertise in regulation and risk management means we can help you turn this challenge into an opportunity to demonstrate transparency, trust, and leadership in the market.

Ready to prepare? Contact Simplify today to start building your roadmap for April 2027.

References:

1. HM Revenue & Customs. (2025). Policy paper. Inheritance Tax — unused pension funds and death benefits. Available at: https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits/inheritance-tax-unused-pension-funds-and-death-benefits (Accesses 17/12/2025)
2. Gronow, Chloe. (2025). Planning assumptions being turned on their head as concerned clients seek reassurance over IHT changes. Available at: https://ifamagazine.com/planning-assumptions-being-turned-on-their-head-as-concerned-clients-seek-reassurance-over-iht-changes/ (Accesses 17/12/2025)
3. Jones, Rozi. (2025). 95% of advisers concerned about pension IHT changes. Available at: https://www.financialreporter.co.uk/95-of-advisers-concerned-about-pension-iht-changes.html (Accesses 17/12/2025)
4. M&G Wealth. (2025). Inheritance Tax on unused pension funds and death benefits. Available at: Inheritance Tax on unused pension funds and death benefits | M&G Wealth (Accesses 08/01/2026)
5. Brooks, Claire. (2025). Inheritance Tax on Pensions: Changes from April 2027. Available at: clarity | Insights Article | Inheritance Tax on Pensions: Changes from April 2027 (Accesses 29/01/2026)

Nina Cherry

Wealth Consultant