Preparing for Pensions Inheritance Tax 2027: What Advisers Need to Do Now

Retirement planning and estate planning have always been connected in principle, but they have often been treated as separate conversations in practice. From 6 April 2027, advisers will need to consider both together as part of a much broader discussion with clients.

The legislation bringing most unused pension funds and pension death benefits into scope for Inheritance Tax (IHT) represents one of the most significant changes to retirement planning in recent years. Retirement withdrawals, tax planning, and estate planning will increasingly need to be considered alongside one another when advising clients.

Early preparation allows firms to approach the reforms in a planned and measured way, rather than responding under pressure as implementation approaches. Waiting until 2027 is likely to bring increased demand, tighter timescales, and clients making important financial decisions under unnecessary pressure.

This report explores how the pensions IHT 2027 reforms will affect retirement planning, the practical implications for advisers, and the steps firms can take now to prepare clients ahead of April 2027.

Pensions IHT 2027: What's Changing?

From 6 April 2027, most unused pension funds and pension death benefits will be brought into the scope of IHT. The Government has confirmed that these assets will be considered when calculating the value of an individual’s estate for IHT purposes.

Although the detailed administration differs from earlier proposals, the overall direction is now clear. Pension wealth can no longer be viewed as sitting outside wider IHT planning.

The new rules do not mean every pension will automatically become liable for 40% IHT. The reforms also do not change the existing Income Tax rules that may apply when beneficiaries inherit pension funds. These remain separate considerations and continue to depend on individual circumstances.

Instead, advisers should begin looking at retirement income, tax efficiency, estate planning, and family objectives as part of the same discussion rather than treating them as separate areas of advice. For many clients, pensions have often been viewed as the last asset to draw on. From April 2027, reviewing whether that approach remains appropriate will become an increasingly important part of retirement planning.

What Decumulation Means

For many years, much of the pensions industry has focused on accumulation: helping clients build wealth throughout their working lives. As more people move into retirement, attention naturally shifts to decumulation, which is the process of turning pension savings into retirement income.

In simple terms, decumulation involves deciding when and how much income to withdraw from a pension. For advisers, those decisions involve balancing a range of factors, including a client's income needs, tax position, life expectancy, future care costs, and the financial security of their family.

The pensions IHT 2027 reforms add another layer of complexity. The timing and level of pension withdrawals no longer affect retirement finances alone. They may also affect the value of a client's estate, the assets ultimately passed to beneficiaries, and the overall IHT position.

For many clients, pensions have often been viewed as the last asset to draw on, allowing them to preserve their pension while using other savings first. From April 2027, advisers may need to revisit whether that approach remains appropriate, taking into account each client's wider financial circumstances and long-term objectives.

Withdrawal decisions should not be driven by tax alone. Drawing larger amounts simply to reduce the value of a pension could increase Income Tax liabilities, move assets into an estate that is already subject to IHT, or affect the sustainability of retirement income. The most appropriate approach will always depend on a client's individual circumstances and should balance immediate needs with longer-term financial objectives.

Practical Implications for Advisers

Preparing for the pensions IHT 2027 reforms is about more than understanding the legislation. Advisers will also need to consider whether they hold enough information to have meaningful conversations about retirement withdrawals and the wider implications for each client.

Many firms are likely to discover that pension values, estate planning information, beneficiary details, and wider financial records are held across different systems or have not been reviewed for some time. Without a complete picture of a client's financial circumstances, it's much harder to assess how different withdrawal approaches could affect their long-term objectives.

Key areas to review include:

• Total pension wealth
• Other assets likely to form part of the estate
• Outstanding liabilities
• Marital status
• Intended beneficiaries
• Existing beneficiary nominations
• Expected retirement income requirements
• Likely expenditure throughout retirement
• Wider estate planning objectives

Recommendations should reflect a client's wider financial circumstances rather than focusing solely on their pension. Once that broader picture has been established, advisers can explore different withdrawal approaches, including maintaining existing withdrawals, increasing pension income, or drawing on other assets first. The most appropriate strategy will depend on the client's objectives and balancing retirement income needs, tax efficiency, long-term financial security, and wider estate planning goals.

Understanding the Advice-Guidance Boundary

The pensions IHT 2027 reforms are also likely to generate more questions from clients. Many will want to understand what has changed, whether they are affected, and if they should review their retirement plans.

Clients will need clear, accessible information about the reforms before deciding whether to seek personalised advice. General information about the legislation, what the changes mean, and concepts such as decumulation can help clients understand why it's worth reviewing their retirement plans. Educational communications, webinars, newsletters, and retirement review campaigns are all practical ways of starting those conversations.

The position changes when conversations move from general information to recommendations based on an individual client's circumstances. Advisers who recommend a specific pension withdrawal, a change to a client's retirement income strategy, or adjustments to their estate planning arrangements are providing regulated advice. Those recommendations should continue to be supported by the firm's usual fact-finding, suitability assessment, and documentation processes.

A clear distinction between guidance and regulated advice allows firms to engage clients earlier without compromising the advice process. Educational communications can raise awareness of the reforms and encourage clients to review their retirement plans, while regulated advice remains focused on recommending the most appropriate course of action based on each client's financial circumstances, objectives, and long-term needs.

Why Early Conversations Matter

Although the reforms do not take effect until April 2027, many of the conversations they require should begin much sooner. Reviewing pension withdrawals, retirement income, beneficiary arrangements, and wider estate planning takes time, particularly where clients have accumulated wealth across multiple pensions and other assets.

Waiting until 2027 is likely to create unnecessary pressure for both clients and advisers. Firms may need to review large numbers of retirement plans within a relatively short period, while clients could find themselves making important financial decisions without enough time to consider the wider implications.

Early engagement creates more time for thoughtful planning on both sides of the adviser-client relationship. Firms can review client circumstances in a structured way, while clients have more opportunity to understand the reforms, ask questions, and consider their options before making important financial decisions.

The reforms also create an opportunity to strengthen client relationships. Many clients are unlikely to be aware of the changes until their adviser raises the subject. Proactive communication demonstrates ongoing value, encourages meaningful discussions about retirement planning, and helps clients feel more confident that their arrangements continue to reflect their circumstances and long-term objectives.

Ultimately, the pensions IHT 2027 reforms are not simply a change to tax legislation. They encourage a broader conversation about how retirement income, inheritance planning, and family objectives fit together. Firms that begin those conversations early will be better placed to provide timely, well-informed advice as the reforms come into effect.

Where Lyfeguard Fits

The pensions IHT 2027 reforms highlight the importance of having a complete and up-to-date understanding of each client's financial circumstances. Meaningful conversations about retirement income, estate planning, and beneficiary arrangements become much harder when information is fragmented across multiple systems or has not been reviewed for some time.

Lyfeguard helps advisers maintain a more complete view of their clients by bringing together important financial information, family relationships, estate planning details, and key life events in one secure platform. With a clearer picture of changing client circumstances, firms are better placed to identify when reviews may be needed and support more informed retirement planning conversations.

As firms prepare for April 2027, the priority extends beyond responding to legislative change. It includes strengthening client relationships, improving the quality of client information, and creating the foundations for more proactive, informed advice over the long term.