Many Wealthy Savers Plan to Leave Pensions to Family but Are Unaware of Upcoming Inheritance Tax Changes
Schroders survey finds a quarter of affluent over-45s expect to pass on unspent pension pots, while half are unaware pensions will be liable for inheritance tax from April 2027
A quarter of affluent savers say they plan to leave unspent pension pots to family members, but many do not understand that pensions will be brought into inheritance tax (IHT) calculations from April 2027, new research from Schroders Personal Wealth shows.
The survey of 1,500 people found substantial gaps in knowledge and planning among older, wealthier households. Half of respondents aged over 45 with household incomes of £50,000 or more were unaware of the Government’s change to treat pensions the same as property, savings and investments for IHT purposes. Some 85% said they did not understand how inheritance tax would affect their families.
The Government announced in last autumn’s Budget that private and workplace pensions will be liable for inheritance tax from April 2027. Currently, pensions held in drawdown are often treated differently from other assets when assessing estates for IHT. Under the existing rules, the nil-rate band is £325,000 and the main residence nil-rate band is £500,000 when a home is left to direct descendants; couples can double those thresholds. IHT is charged at 40% on assets above those thresholds, although transfers between spouses are generally exempt until the death of the second partner.
The Schroders survey also highlighted wider uncertainty about retirement planning. The firm noted other policy shifts that could affect planning assumptions: the state pension age is scheduled to rise from 66 to 67 between 2026 and 2028, and the minimum age for accessing workplace and other private pensions will increase from 55 to 57 in April 2028.
Respondents showed mixed preparedness. While one in four over-45s with household incomes above £50,000 expect to pass pensions to heirs, 43% said they did not have an up-to-date financial plan and 26% said they had no plan at all. On pension valuation, 22% said they did not know how much their pensions were worth; that ignorance rose to 28% among those aged 65 and over. Some 60% of those polled had not taken financial advice about retirement. Only one in 10 described themselves as "extremely confident" about their financial future in retirement, while nearly a third rated their confidence between zero and four out of ten.
Alex Gaita, financial planning director at Schroders Personal Wealth, said retirement planning is affected by changing laws as well as individual circumstances and urged savers to keep plans under review. He warned that too many people are planning on outdated assumptions about tax and other government policies. Gaita recommended that people consult trusted information sources such as the government-funded MoneyHelper website, build flexibility into their plans, hold early conversations with family about inheritance and key documents, and seek professional financial advice. He said advisers often use cashflow modelling to help clients visualise income, expenses and goals over time and to assess the impact of policy changes.
Financial advisers and estate planners say the inclusion of pensions in IHT calculations could materially affect how estates are administered and taxed. For estates close to the nil-rate bands, previously sheltered pension wealth may now create additional IHT liabilities for heirs unless mitigations are arranged. Spouses retain certain exemptions, but single people or estates passing assets to non-spouse beneficiaries may face larger tax bills than expected.
The Schroders findings add to evidence that many households are planning for retirement on assumptions that may no longer hold. Financial advisers stress the value of up-to-date valuations of pension pots and other assets, explicit estate plans that consider new rules, and regular reviews when government policy changes are announced.
As the April 2027 deadline approaches, households with significant pension savings face decisions about whether to adjust beneficiary designations, use trusts where appropriate, consider tax-efficient giving while alive, or seek bespoke advice. Government guidance and independent financial advice are likely to be central to reducing surprises for heirs and ensuring retirement plans remain aligned with current law.