Over the course of a career, it’s surprisingly easy to lose track of how many pensions you’ve built up along the way.
A workplace pension from your first job, another from a company you left ten years ago, maybe a small pot from a short-term role that hasn’t been looked at in years.
Until now, that hasn’t mattered too much from an inheritance tax perspective because pensions have often been treated differently from the rest of your assets, typically sitting outside the inheritance tax net. But from next year, that picture is set to change: from April 2027, most unused defined contribution pensions are expected to become part of a person’s estate for inheritance tax purposes.
HMRC recently released further details on how the new system may work in practice, although the guidance is still evolving and final updates are not expected until shortly before the changes come into force. What already seems clear, however, is how much responsibility may fall on families after someone dies.
This is where the difference between having a financial adviser and not having one could become very significant.
What the process may look like without advice
Imagine someone passes away in 2028.
Their partner or children are already dealing with grief, probate, paperwork and all the practical realities that come with losing a loved one. At the same time, under the new rules, the ‘personal representative’ of the estate will also need to track down every pension the deceased person held throughout their lifetime.
A personal representative is the person legally responsible for managing the person’s estate after death – either an executor named in a will, or an administrator appointed if there is no will. It will become their job to look for their loved one’s pensions:
- Old workplace pensions
- Personal pensions
- Forgotten schemes from previous employers
- Online-only pension providers
- Small pension pots that haven’t been reviewed in years
This may amount to two or three pensions for anyone approaching retirement today, but for younger generations, it could easily mean ten or twelve across an entire career.
Each provider will need to be contacted separately, values will need to be confirmed, beneficiaries identified and information gathered and submitted to HMRC. If inheritance tax is due, the personal representative may then need to calculate how much is payable across the estate and notify each pension provider of their share of the tax bill.
All while trying to manage bereavement.
This is exactly why these changes matter. Not simply because of the tax itself, but because of the complexity they introduce at what is already an incredibly difficult time for families.
What the same situation may look like with an adviser
Now imagine the same situation for someone who has worked with a financial adviser over the years.
Their pensions will have already been tracked down and brought together where appropriate. Their retirement plans, will and wider financial arrangements will have been looked at together. They’ll have up-to-date records about who they would like to inherit their pension savings, and their family will already know who to contact and what to do about their loved one’s finances.
Their adviser, having already structured their finances, can help guide the family through the process step-by-step.
That doesn’t remove the emotional difficulty of losing someone. But it can remove a huge amount of stress, confusion and uncertainty at a time when people are least equipped to deal with it.
Why this matters now
Although the changes don’t come into force until April 2027, this is not something to leave until the last minute.
The reality is that many people still don’t have a clear overview of their pensions, and it’s surprisingly common for people to lose track of old workplace schemes over time, especially after changing jobs multiple times throughout their career.
As these rules develop over the next year, getting organised early will become increasingly important.
That might mean:
- Reviewing old pension arrangements
- Checking beneficiary nominations are up-to-date
- Making sure wills still reflect your wishes
- Understanding how pensions now fit into wider inheritance tax planning
- Having conversations with family members about where information is held
For existing clients, these are exactly the kinds of conversations we’re already having and will continue to guide clients through as further details emerge.
And for those who don’t currently work with an adviser, this is often the point where financial planning becomes about much more than simply managing investments.
It becomes about clarity, organisation and making difficult situations easier for the people around you.
A conversation many families avoid
Death, inheritance and estate planning are topics many families understandably avoid discussing.
But doing so often leaves loved ones dealing with far more stress and administration later on, and the pension inheritance tax changes coming in 2027 may bring those issues into much sharper focus.
Which is why getting organised now matters.
Coming soon: inheritance tax webinar
We’ll be discussing these changes, along with wider inheritance tax planning considerations, in an upcoming Navigate webinar focused on why it’s so important to get organised around the topic of death and estate planning.
More details will be shared soon.
And if this article has raised questions about your own pensions, estate planning, or whether your family would know where to start if something happened to you, we’d be happy to have a conversation.
