What’s changing for pensions in 2027, and why it matters
One of the most persistent assumptions in financial planning is about to change. Stuart Johnson, Certified Financial Planner and Head of the Borders Office at McHardy Private Wealth, explains what's happening and what to do about it.
“For many years, pensions sat outside a person's estate for inheritance tax purposes – and many clients built their estate planning around that,” says Stuart Johnson, Director at McHardy Private Wealth. “But the rules are changing significantly.”
From 6 April 2027, most unused pension funds and pension death benefits will be brought into the value of a deceased person's estate for inheritance tax calculations. For clients who have been relying on their pension as an inheritance tax planning tool, this is worth reviewing before the rules come into force.
There's a second layer that often gets missed. “In some cases, inherited pension funds can also be subject to income tax,” Stuart explains, “depending on factors such as the age of the pension holder when they died and how the beneficiary takes the money.” The interaction between the two taxes can be complex, and the implications vary considerably from one family to the next.
What this means for you
The change doesn't make pensions less valuable – they remain one of the most tax-efficient ways to save, and the benefits during your lifetime are unchanged. But the strategy for how you use your pension, and in what order you draw on your assets, may need revisiting.
For some clients, the priority will be to draw down more from their pension during their lifetime, preserving other assets that are already within their estate. For others, gifting strategies or trust planning may become more relevant. The right approach depends on the full picture – income needs, estate size, family circumstances and long-term goals.
With April 2027 approaching, now is a sensible time to review your position.
“Too often, people are reluctant to spend their wealth … Good financial planning provides the confidence to enjoy life, knowing their future remains secure”
Stuart Johnson, Director at McHardy Private Wealth
One piece of advice before you retire
“If it's affordable, I encourage clients to enjoy the retirement they've spent a lifetime saving for,” he says. “Too often, people are reluctant to spend their wealth despite being in a strong financial position. Good financial planning provides the confidence to enjoy life, knowing their future remains secure.”
But for Stuart, the numbers are only part of it.
“Seeing a client's confidence grow as they realise they can afford to retire – the excitement and relief on their faces when they see a clear picture of their financial future – that's priceless. It's a powerful reminder of the value of good financial advice.”
If you'd like to review how the April 2027 changes might affect your estate plan, get in touch with your adviser or contact us:
