Three-quarters, 74%, of savers are unaware that their pension pots will become subject to inheritance tax in 2027, according to a new snap survey from workplace pension provider Penfold.
The 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 6 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.
Chris Eastwood, co-founder and CEO of Penfold, said, “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. 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.”