Retirement planning is rarely just about choosing when to stop working. It can involve decisions about income, tax, family support, long-term care, your home, your pension and the legacy you want to leave behind. With the rules around pensions and inheritance tax changing, now is a sensible time to understand what the change could mean for you and your family.
The new reality of retirement and estate planning
For many years, pensions have often been treated differently from other assets when someone dies. Currently, unused defined contribution (DC) pension savings sit outside the estate for inheritance tax purposes. From 6 April 2027, most unused defined contribution pension funds and pension death benefits are expected to be brought into the value of a person’s estate. That means your pension may need to be considered alongside your home, savings, investments, ISAs, life policies and recent gifts when working out whether inheritance tax could apply.
This matters because inheritance tax can apply at 40% on the value of an estate above available allowances. The standard nil-rate band is currently £325,000, with a residence nil-rate band of up to £175,000, subject to eligibility, where a main home is left to direct descendants, such as children or grandchildren. Married couples and civil partners will also be able to transfer unused allowances. The availability and value of these allowances can depend on personal circumstances and the overall value of the estate. Once pension savings are included, some estates that previously sat below the threshold may become taxable.
The change also arrives at a time when many people are making complex retirement decisions without regulated advice. FCA retirement income market data shows that only 30.6% of pension plans accessed for the first time in 2024/25 were accessed by people who took regulated advice.3 That means many individuals could be making decisions about drawdown, tax-free cash, beneficiaries and estate planning without fully understanding the long-term impact.
Why it is worth reviewing your plans now
You do not need to make rushed decisions, but you may benefit from reviewing how your pension fits into your wider financial plan. The right approach will depend on your circumstances, your retirement income needs, your family situation and your long-term goals.
Here are six areas to think about:
1. Understand what could be included in your estate
Your estate may include more than you think. Property, savings, investments, ISAs, life insurance policies held in your own name, recent gifts and, from April 2027, most unused DC pension funds could all be relevant. Understanding the full picture is the first step towards making informed choices.
2. Review how you plan to use your pension
Some people have deliberately preserved their pension while using other assets first, partly because pensions have often been useful for legacy planning. The upcoming rules may change the balance. You may want to consider how much income you need, whether your withdrawal strategy still makes sense and how your pension interacts with other assets.
3. Check your beneficiary nominations
Your pension beneficiary nomination tells your provider who you would like to receive your pension benefits when you die. Pension benefits passing to a surviving spouse or civil partner will remain exempt from inheritance tax, so it is important to keep nominations up to date, especially after major life events such as marriage, divorce, bereavement, the birth of children or grandchildren, or changes in your family circumstances.
4. Think about wills, gifting and protection
A will, gifting strategy, trust arrangement or life insurance policy may all form part of wider estate planning. These areas can be complex and the right answer will depend on your personal circumstances, so it is important to seek regulated financial advice and, where needed, tax or legal advice before taking action.
5. Understand the options available to reduce future tax liabilities
Depending on your circumstances, gifting, trusts, life insurance or wider estate planning may help you manage future liabilities and protect the value you want to pass on. These areas can be complex and may not be suitable for everyone, so it is important to consider seeking regulated financial advice and, where needed, tax or legal advice before taking action.
6. Calculate how much you may need during your lifetime
While gifting or transferring wealth can form part of inheritance tax planning, it should be balanced carefully against your own long-term needs. Before making decisions, consider how much income and capital you may need to support your lifestyle, health, care, housing and unexpected costs throughout retirement. Giving too much away too soon could leave you financially exposed, reduce your flexibility and make it harder to respond if your circumstances change. It is important to make sure any planning protects both the legacy you want to leave and the security you need during your lifetime.
What you can do now
The rules are not due to take effect until 6 April 2027, but early planning can give you more options and reduce the risk of rushed decisions. A sensible starting point is to gather the details of your pensions and wider assets, then consider whether your current plans still reflect what you want to achieve.
- List your pension pots, including workplace pensions, personal pensions and SIPPs
- Check who your nominated pension beneficiaries are
- Review your will and make sure it reflects your current wishes
- Consider how your home, savings, investments, ISAs, life policies and pension savings may interact
- Speak to a regulated financial adviser before making decisions about pension withdrawals, gifting, trusts or estate planning
- Talk to your family or executors so they know where important documents are held
This is not about trying to predict every future tax change. It is about understanding your current position, checking whether your assumptions still hold true and making sure your retirement and estate plans work together.
For some people, the change may make little difference. For others, it could affect how much tax their estate may face, how pension benefits are passed on, or how much administration their personal representatives need to manage after death. The important point is to find out where you stand before the new rules take effect.
Good planning can help you balance different priorities: maintaining your own financial security, supporting loved ones, making tax-efficient decisions and leaving a legacy in the way you intend.
Final thoughts
The inclusion of pensions in inheritance tax calculations marks a significant shift for retirement and estate planning. If you have built up pension savings, own property, have investments or want to pass wealth on to loved ones, now is a good time to review your plans. Taking advice early can help you understand your options and make decisions with greater confidence.