Episode 26 - Pensions, Inheritance Tax & the Big April 2027 Change: What You Need to Know

Pensions have long been seen as one of the most tax-efficient ways to pass wealth to the next generation. But from April 2027, that could change dramatically.

In this episode, Dave sits down with financial planners Mat Bonney and Adrian to unpack one of the biggest proposed shifts to UK inheritance planning in years: the move to bring pension pots into inheritance tax calculations.

What does the change actually mean? Could your pension suddenly become liable for inheritance tax? And if you have a spouse, children, or multiple pension pots, what practical steps should you be thinking about now?

The conversation demystifies what is changing, why it matters, and how to avoid knee-jerk reactions. From pension nominations and nil-rate bands to retirement income planning and estate strategy, this episode explores why pensions can no longer be treated in isolation.

Dave also asks the questions many people approaching retirement are quietly wondering: Should I rethink my pension strategy? Is this the beginning of wider inheritance tax reform? And how do I avoid leaving a financial mess for my family?

Matt and Adrian stress the importance of keeping calm, getting informed, and planning carefully, while also highlighting some of the unintended consequences these rules could create for families facing difficult circumstances.

In this episode, we cover:

•  What the proposed pension inheritance tax changes actually mean 
•  Why April 2027 could be a major financial “guillotine date” 
•  How pension nominations may need revisiting 
•  Why pensions may now need to be considered alongside the rest of your estate 
•  The risks of knee-jerk reactions and rushed decision-making 
•  Whether consolidating old pension pots could make life easier for loved ones 
•  Why pensions still remain an important retirement vehicle despite the changes 
•  The broader question: is this the start of bigger inheritance tax reform? 

If pensions, retirement, inheritance, or financial planning feel confusing, this episode aims to cut through the noise and explain what really matters — without the jargon.

Transcript

David Wallace (00:00)
welcome Matt and Adrian. Really looking forward to this conversation. There's a few things I...

I kind of really need to get my head around and it's all to do with pensions and inheritance. So we're gonna have quite a detailed conversation I think today. But ⁓ I've been reading about the changes that are happening and I just thought if we could start with the basics of what on earth is going on that would be fabulous.

Adrian (00:29)
Okay, the government introduced this proposal a couple of years ago when they came into power. It was originally gonna be put into place this year, April 26th. They kicked that down the road, but are now pretty much confirmed that it will come into force in April next year, 27th. ⁓ And the change basically is that if you were to...

shuffle off mortal coil today, the value of your pension fund would not be subject to inheritance tax, it wouldn't form part of your estate, it would pass down to your beneficiaries, whether that's your spouse, civil partner or anybody else. There would be a tax, potential tax consequence, but the tax basis will be based on the people receiving it, not you. That's a simplistic view.

Next year, when the rules come into place in April next year, that will change and the total value of your pension pot at the date of death will form part of your estate for the calculation of inheritance tax. So it's a significant change from where we sit today.

David Wallace (01:45)
I mean, it sounds like a huge change to me. I was just wondering, because you have a good idea about some of my circumstances, if you could kind of outline maybe some of the things that I need to think about and consider as part of.

of what is going on

Adrian (02:03)
I think the first thing I would say, taking it from your perspective, Dave, is, and obviously Everybody's circumstance is going to be different. But the most important thing is not to treat this in isolation, not to simply go, ⁓

This has happened. I must do something with my pension. You've got to put it again back into context with your wider situation, where you are, what you're trying to achieve and what the actual implications are for you. And then then we can start to look at what you can do about it.

the most important thing is understanding, first of all, are you going to be okay financially? Are you going to have the income to give you what you need to do in your life while you're there? Once we can be sure that that's the case, are your family going to be okay? What's their situation? And then once that's in place, legacy. What does your legacy look like? And legacy encompasses inheritance tax. And for some people, it will be simply about

⁓ the tax that they might pay on death. For others, it might have a wider connotation of what they actually want to leave behind beyond their family. Those are broader issues. But you've got to look at all of that in the mix. And these changes to pensions therefore may start to change how you view things and what the mechanics are that we put in place to achieve those goals.

But don't treat it in isolation. It's got to be part of that bigger piece.

David Wallace (03:39)
some people may not have put nominees on their pension. So can you just sort of talk through the importance of that, particularly with the change which has happened?

Adrian (03:52)
Matt, you're on up.

Mat Bonney (03:52)
Yeah I'll take that one. So I think it is all too common for somebody to forget about adding a nominee or a beneficiary onto their pension. That being said, if somebody passes away and the pension trustees have a look at things, they can still deal with it without a nomination. It does make things a bit more complicated. So it's

Regardless of this tax change, think it's absolutely vital to always make sure that you have the right people nominated to receive the pension benefits ⁓ when you pass away. I think a nuance on where these rules take that for me is that because the pension benefits are now being brought into your estate for inheritance tax,

estate and inheritance tax rules apply, which means that if you are married and you're the first to die, so first death out of the couple, and you want your pension benefits to go to your spouse, absolutely make sure they are nominated for that. But also that rule of transfers of assets between spouses on death is exempted from inheritance tax.

So it's much like all the rest of the inheritance tax rules, it is a second death issue. Where you can run into issues with that under these new rules is the fact that it will be part of your estate. So, you know, in this whole calculation. And if you make a decision like, I'm going to leave half to my wife and half to my kids, because you can do that, your pension nomination is yours, yours to choose who you give it to is totally flexible.

50 % to my wife, 50 % to my kids. That 50 % to your children will be classed as a transfer on death to somebody that's not your spouse and therefore use up perhaps a nil rate band. So in your estate, the first 325,000 pound of your estate, your nil rate band is inheritance tax exempt and nominating somebody that isn't your spouse.

will start to use things like your no-rate band allowance. Or indeed, if the value is above your no-rate band allowance, you might create some inheritance tax on first death.

David Wallace (06:27)
Can I, sorry, just to be clear, until, like up until next April, if I was to do the 50-50, then there'd be no tax to pay.

Mat Bonney (06:39)
at all.

David Wallace (06:40)
So I mean, and that

to me is a great kind of way of, you know, for me starting to think, well, actually, I do need to really think very carefully about this because, you know, up until this, and I have to confess that I'd almost forgotten about this change coming in, because as you say, Adrian, it was announced a couple of years ago and, you know, April's sort of heading our way pretty quickly, isn't it? You know, so. ⁓

But that means, I've genuinely been thinking like, don't need to worry about my pension, that sits outside of the estate. Now I really need to kind of think about it in totality. And I think that just changes quite a lot, doesn't it, in terms of how you start sort planning.

Adrian (07:31)
Yeah,

very much so. think, I mean, today and with the legislation that we have right now, ⁓ our advice would generally be when we're thinking and when estate planning is an important part of that person's sort of objectives, we'd be looking at keeping money in the pension because obviously that's going to stay outside of it on death from the estate value perspective.

and use money, the other money that you might have in other investments, whether it be ISIS, general accounts, whatever that may be, to provide you with an income, which of course is reducing the taxable amount on death because it's removing it from the estate because you're spending it. And the pension, which currently sits outside of the estate, is outside of the estate. So it's a brilliant bit of inheritance tax planning. This change turns that on its head.

So you will have a situation where not only does your pension come into the estate, but your pension will be subject to inheritance tax. And then it will then, the income from it will be subject to income tax in the hands of the beneficiary very commonly. And that looks like it's the direction it's gonna go in. you could actually have an effective rate of tax, sort of 70 % or.

it gets really rather unpleasant. So how do you deal with that? Well, maybe you start to draw down that pension more quickly now and spend that money. But you then have to put into context with, you start gifting other assets to your children and where do those assets come from? But it comes back to that's all very well and good as long as you are gonna be okay and your wife is gonna be

Pensions have for as long as I've been working, been a political football and the legislation changes around them pretty constantly,

So I think, and certainly part of our thinking has always been, yes, we have this fantastic set of rules right now that Osborne brought in in 2015, brilliant. Were they always, were they ever gonna stay there forever? Probably not. And so therefore there was...

always a bit of pragmatism in the approach we've taken. So in pure terms, you wouldn't touch a pension, you take everything else. In reality, for most of our clients, we probably are taking a bit of pension as part of an income plan, because it makes sense to keep some tinder dry and to actually make sure you've got flexibility, and that proved to be useful.

I think we've got to be very careful that we don't overreact and go, ⁓ it's all terrible and make silly decisions. Considered decisions are important. And that's kind of one of the reasons we're starting to talk about this now. I think we will be covering this quite a lot, both in further podcasts and...

written stuff that we'll put out to clients about what these changes might mean and start to sit down with everybody and talk about the implications for them. Because I said at the beginning, every case is different.

David Wallace (10:51)
I think for me it's great because there is a demystification which you kind of need around all of this, but it does point...

Adrian (11:03)
I'm so glad you found that, Doug.

David Wallace (11:03)
You know,

Mat Bonney (11:05)
You

David Wallace (11:06)
there's so many opportunities to just sort of do something in a very knee-jerk way.

Adrian (11:11)
Yeah, yeah. And that's what we don't

want people to go and, you know, just go, oh, I must do this then and go and do it without talking to us or whoever, good advisor and making sure that they're getting properly considered advice and thinking about what the implications are for them. And, you know, what can you do about it? Well, I mean, yeah, there's it's going to happen. The legislation is there when it comes in.

What can you do? mean, you you spend the pension maybe, but there is a relatively limited amount of things that you can physically do. You have to understand the impact of what that is though, and what's the impact of these changes on your life. But there are things that can be done, ⁓ which dovetails into wider estate planning that we already talk to with clients around in terms of perhaps.

setting up pre-funded trusts that can cover the additional tax that will come into play or whatever. But all of it takes, it just as I said, with the danger of repeating myself, it needs time to make the right decisions and informed decisions rather than a knee-jerk reaction.

David Wallace (12:31)
No, Matt, mean, in terms of the clients that you've got, have people sort of started asking you about this? Do you think there's good awareness of this change? You know, again, we're doing this series to help, as Adrian says, get really under the matter. But I was just kind of interested in terms of sort of what your experience is and experiencing in terms of talking to some of the clients that you've got.

Mat Bonney (13:00)
I think there is definitely some awareness of it. So the question definitely has been asked. Not everybody, you you see such a variety of people, some people you sort of go into a discussion with a mindset of, you know, I'm going to inform you of something coming up. Other clients are well read ⁓ and are very, very aware of it. And I suppose I just wanted to loop it back to something

something you sort of mentioned earlier, which was around in that discussion, I think, so when I've been having that discussion, whether it's been, you know, just be aware, we've got this coming up. This is how it changes the numbers. So there's a change to the numbers attached around your estate. So we will, as a habit and our normal rhythm of meeting with people, look at right across the piece, including what an inheritance tax number might look like. ⁓

But I think as humans, we love a shortcut. We love a sort of simple, quick way of thinking about something. And I think the kind of the lens that I've been trying to put on this conversation that I've been having with clients about when it happens is our shortcut was, well, pensions are outside of the estate. Don't need to worry about that. Park that to one side, leave that to the kids.

put their kids on as the nomination or however that looks. So therefore, all I have to think about with my retirement income or this next phase where I start to spend money from my portfolio, don't have to worry about the pension. I could just worry about the other stuff and how I've mixed a general sort of invested accountant, ISU, rental property, that kind of thing. So it of would take away a whole chunk of thinking with, that's fine. That's legacy planning sorted and pension out of my psyche.

I think we have just have to step back for a moment and go, okay, we just have to get rid of that shortcut, that shortcut way of thinking about it. And that it's actually, instead of just blocking pension out of that thought process, it's just another account. So you've got your ISO, you've got maybe a general investment account, maybe a rental property, bringing in some rental income. And instead of just discounting the pensions off the bat, it's just in the mix. And we may just add a little bit more into an income mix.

than we did before. So, you know, yes, we need to think about inheritance tax numbers, and but we're kind of doing that anyway. We just need to maybe think about how we weight the income that you're taking out of that pension in your in your income plan.

One thing I think that is practical to think about is if you've got different pension pots lying about.

David Wallace (15:58)
Right.

Mat Bonney (15:59)
because whilst it's all well and good saying that, you know, let's not have any joke reactions, let's not, you know, let's not get too in our heads about what might be happening and kind of have some calm and sensible thinking and planning around it, it's not necessarily the most well thought through piece of legislation in terms of practicalities. So there will be a lot of pressure.

on personal representatives for somebody. So when you've died and you need to reconcile those pension funds as part of the estate, there is going to be a limited amount of time that you have to do that and to report it and pay the inheritance tax on it, if inheritance tax is due at that point. The Treasury is stuck to their guns on a six month window to do all of that. The House of Lords

Adrian (16:53)
They were looking at moving to 12 months, weren't they?

Mat Bonney (16:58)
lobbied against it and tried to get them to make it to be 12 months to give people a chance to go if I've got seven different useless pension providers how do I do all of that in six months as well as all the rest of the estate stuff that I have to do.

Adrian (17:17)
This

raises a really good point because we alluded to it earlier, this has come in, they moved it back a year because there was a lot of lobbying from the pension providers going, well hold on a minute, we don't have the systems to deal with this. There is still a very strong chance that they won't have the systems to deal with this, even in April 2017. And that concerns them and us about how the industry will actually be able to cope.

Mat Bonney (17:38)
Absolutely.

Adrian (17:46)
And some of the legacy providers, some of the old, you know, old pensions that you might've had from years and years ago, A, the pensions may not be adaptable to the changes. They may not be in the right place now to do this, but they probably won't be able to cope with it either. I think revisiting and reviewing the wider pensions that you might have built up over the years is probably a really good bit of housekeeping to be done and think about.

We're sensible and relevant consolidating those together. And it will be so much easier to run and manage in a more modern vehicle that can cope with all of this. So that isn't a side.

David Wallace (18:23)
I

mean, that's really good advice because, you know, sadly I've been through probate a few times and, you know, if it's messy, just even dealing with the sort of dealing with the sort of paperwork is a nightmare in itself. But if you then got kind of time, you feel like there's a real sort of time in terms of pulling all of this stuff together. And I can see if you've got pensions in multiple different places, it could just be an absolute nightmare.

Adrian (18:30)
Yeah. ⁓

David Wallace (18:52)
Consolidating now seems like a very sensible thing to do.

Adrian (18:57)
I mean,

you've got to take every case on its merits. So it's not a slam dunk, but think it becomes, it's another level of importance to definitely look at it again. Even if you, might've looked at it in the past, but actually it's probably worthwhile revisiting, I would suggest. ⁓

Mat Bonney (19:06)
Yes.

Yeah.

David Wallace (19:13)
Can I, I mean, I'm just, this is probably me being a bit stupid, you know, like I've done nominations, but I probably would want to relook at those nominations now in the light of this. you know, is that another practical thing people could do is just kind of read this, yeah.

Adrian (19:28)
Yeah, very much.

Very much so. Very much so. I mean, the issue that we have, the issue that the whole industry has is that everybody's going to be affected or many of our clients are going to be affected by this. If everybody turns up tomorrow demanding action, we're going to be somewhat stretched, it's fair to say, which again is why starting these conversations early and doing it in a measured, sensible manner.

but not waiting till the last minute is really important, but also understanding that everybody's gonna have time constraints. It's gonna be a very, I think it's gonna be a very difficult 12 months. And actually we all need to be working together to make sure that we can get as much of it done as we possibly can, which again, so we start to talk with people about this already, obviously, but watch this space, there'll be a lot more of it.

David Wallace (20:24)
I mean, think one of the, from a kind of client point of view, one of the problems is we're sort of all fixed on these calendar of events and, you know, we're the best win in the world. Like as you're coming up to April, you're starting to think about, you know, the ice, all of these. So we're all sort of programmed around this stuff. And I can genuinely see the industry being in a position where lots of people are having to do lots of stuff.

Mat Bonney (20:43)
Thank

Adrian (20:43)
Yep.

Hmm.

Mat Bonney (20:46)
⁓

David Wallace (20:54)
in April because people haven't really, so I really think this is totally worth, there's nothing stopping anybody kind of from starting to prepare for this right now, is there? I mean, and one question I had is, you know, there's the 5th of April, I mean, that's the date, it feels very much like a kind of guillotine date as well, if you, yeah, so I mean, I just wonder what your sort of thoughts around that.

Adrian (21:05)
No, absolutely.

Yeah, I think you're spot on. It is a bit of a guillotine. if you died on the 4th of April and you died on the 6th of April, you will be in two completely different frameworks. mean, and there are some, clearly, think some unintended consequences of this. we talked about, was saying about it being a bit unthought through in terms of the legislation. I was chatting to a mate of mine who runs another wealth management

firm, a very good firm. And he was, he was regarding the story of he met up with a client who very sadly has terminal cancer, terminal cancer diagnosis. And that has got as part of his estate, a reasonably sizable pension pot. He's been told that yes, if he takes some treatment and he can, you know, probably kick

the the the the the the the the the the the the the the the the the probably give himself an extra 15 months or whatever of life, but that would take him over the 6th of April. If he doesn't take that treatment, he will probably have a six month life expectancy or less. So he's actually having to decide on his treatment based on a tax rule coming in as a guillotine on the 5th of April. That's ridiculous, isn't it?

That's just absolutely wrong.

David Wallace (22:53)
You know what it is?

⁓ I don't really know what to say about that. mean, it's kind of shocking.

Adrian (23:01)
Well, mean, it's really shocking. And

I think that that's just hasn't been thought through. And that sort of approach is, yeah, I mean, you know, if nothing else, I think if we can, as an industry, we need to raise awareness of that and put some pressure to allow more flexibility in situations like that, because that's just not that's not right, is it? But, you know, it's it's like anything like this. You have this this guillotine date.

You've got to make a decision or and in this instance, it's not a decision you can make, you know, when am going to die? And in this instance, when you have something like that, this person does clearly have some form of a decision, but that's horrendous. Anyway, yeah, was nice. The grenade into the chat, but I mean, it's not nice, is it?

Mat Bonney (23:47)
⁓ huh.

David Wallace (23:48)
Well,

I mean, it's horrendous for him, but it's horrendous for

No, no, no, but I mean, it's horrendous for him. It's horrendous for his family. mean, how do you square that circle? Because, you know, I mean, yeah, I'm trying to put myself in that position and it's almost impossible.

Adrian (23:58)
Exactly.

No.

Mat Bonney (24:11)
Yeah,

yeah, yeah. it's just, again, it's where the Treasury and all of that just don't necessarily help themselves because, like you say, pensions for as long as we've known have been a political football to achieve certain outcomes. Clearly, you just described, people will be getting caught in the crossfire of that sort of political football, but also fundamentally,

pension is a lifetime thing and how do you plan for a lifetime thing when you have these really short-term kicked about changes that can swing from literally one side of the valley to the other side of the valley in a blink of an eye almost.

David Wallace (25:01)
Well, I mean, on that,

do you think this change is the sort of thin end of the wedge in terms of policy around kind of inheritance tax? I mean, is it? Yeah, I mean, it's a big question and you probably don't have an answer, but.

Adrian (25:19)
Well,

no, I mean, I wish we did. I wish our crystal ball is a little bit murky at the moment. I mean, we sit here today talking about this. I mean, it'll probably go out once things are a little bit more known. But as we sit here, there's potential leadership challenges to the prime minister. And there could be movements within the government from one political piece to another. It could be more to the left, more to the right.

Who knows? mean, and therefore wealth tax and the that's been talked about in the past. All of this stuff is up in the air. For us, you can only deal with the situation that presents itself to you at the time. You can only deal sensibly with the tax regime that you know you're in. But equally, we would be stupid to put our heads in the sand and think that it would never change ever.

So against why a bit of pragmatism and a little bit of sense, can't bet the house on one particular route ⁓ or a of sort of legislation being there in the future. Is it the thin end of the wedge? I think that wedge is already being slid down. It's more of a roller coaster than a wedge, I feel. ⁓

David Wallace (26:40)
Right, okay.

Adrian (26:43)
So we just have to kind of, we have to roll with the punches to a degree and make the best of whatever is there at the time and work out the potential pathways and ⁓ so it's, yeah, it's not a one size fits all. yeah, rollercoaster's not a wedge.

Mat Bonney (27:02)
And I think what I might add to that is possibly two questions that I think one we definitely see a lot of, which I suppose I want to kind of dispel. The other one, maybe people don't necessarily think about it or maybe they do. I think the first question is, is it likely that we'll wake up next April and the rules, something fundamental will have changed and the rules are kind of back to where they were.

I think it's quite a, to hope for that is a bit of a rose tinted view. And I think, I think if we're thinking about it seriously, which we are, let's assume that the rules will be in place. They are, it will happen. I don't think you can sit and hope for changes in government and other things to try and reverse what is now actually quite far down, down the road. So working assumption is that the rules come into force from April and we just.

are working around that. And I suppose the second question is we've got a whole breadth of clients that may well listen to this. We've got some people that are in retirement or perhaps like you mentioned Dave yourself, where it's like maybe that move into retirement is fairly imminent. Or indeed people that are still accumulating their wealth and their money. And so the natural question is, well, do I stop paying into pension if this thing is such a hot potato? If this thing is

Adrian (28:21)
you

Mat Bonney (28:30)
you know, if there's a big old unfavorable move against it now, is there any point in still paying money into pension? And I think we don't want to lose the sight of the fact that a pension is actually fundamental to your retirement planning and the foundations of your retirement. So it's absolutely, in more cases than not, I would suggest the best thinking, best ideas, best advice is to keep paying money into pension because you get the tax relief on your contributions.

If you're a high rate taxpayer, you get higher rate tax relief along the way. Obviously for ultra high earners, there are the cap on how much you can pay in. But nonetheless, you still get tax relief even if that amount is small. The investments grow tax free. You get your 25 % tax free cash lump sum when you come to take the money out. this change is...

one quadrant of a number of benefits of the pension and I think it still plays a foundational role in planning out for your future.

Adrian (29:36)
Bye.

I think you're right. The point you raised is a really good one. I think there will invariably be press comments and media and people naturally worrying that will go, well, pensions are rubbish, so now we're only investing pensions. And that would be wrong as well. But again, it's got to be put into context. They're still, even with these changes, a very useful vehicle. And I come back to my point at the very beginning. 12 years ago, we were already there.

Mat Bonney (29:54)
Yeah.

Adrian (30:09)
And when I first started pensions, you bought an annuity and if you died the next day, you lost the whole pension pot. So this even where we are now, it's still actually quite a significant benefit on where it was. It's just that it feels like we're going backwards. Well, we are going backwards. but yeah, I think it's been a really beneficial period of time. But I think me and Matt were chatting about this. I think

Mat Bonney (30:30)
you

Adrian (30:38)
our view probably when the legislation came in back in 2015 was this is great but it feels a bit too good to be true it probably won't be around forever will it and here we are here we are

David Wallace (30:54)
Very, very good. So the message is very much keep calm, carry on, but open your eyes and you know, again, don't do anything without having a chat to your advisor.

Adrian (31:00)
See.

Be informed,

be prepared. We will be, we're here to help. We will be talking to everybody. We'll come to you, but you come to us as well. We will talk. We are starting to have these conversations now so that we give ourselves a proper level of runway to work out what is gonna be the optimal way of dealing with this for all of our clients. So, but in turn, please don't leave it to last minute.

David Wallace (31:32)
I was going to say a massive note to self, because I have a tendency just to get these, yeah. So, you know, don't leave it to the last minute because I think that's where, ⁓ you know, there'll be just too much going on. So, ⁓ well, listen, thank you. Because I mean, I'm looking forward to kind of talking about this a lot more actually, because I think it's a subject that will run and run. So, ⁓ know, watch this space.

Adrian (31:35)
Yeah. Don't we all, we're human. Yeah.

We will cure your insomnia, Dave.

We will cure your insomnia. ⁓

David Wallace (32:05)
I don't know, you both make the whole subject very, very interesting, so thank you.

Mat Bonney (32:11)
The envelope will be on its way later.

Adrian (32:14)
You

David Wallace (32:17)
Just subscribe to my only fans and then

Adrian (32:19)
Exactly.

David Wallace (32:24)
Great stuff. Okay, brilliant. Thank you so much for your time.

Adrian (32:26)
Lovely.

Mat Bonney (32:27)
I'm sorry.

Adrian (32:28)
Pleasure. See you soon, Bye-bye.

Mat Bonney (32:29)
very welcome Dave. Great to

chat.