Prepare now for inheritance tax change on pensions

From April 2027, pensions will no longer be exempt from inheritance tax, and that is proving a worry for many elderly.

- Rob Kenyon

Government figures estimate that 10,500 estates will pay IHT for the first time as a result and 38,500 more than they otherwise would.

It is still the case that the vast majority won't be affected, saving into a pension remains highly tax efficient, with tax-free growth and 25% tax-free cash, but there are unwelcome consequences for some, for example double or even triple taxation.

Royal London states: "Even with this change, inheritance tax isn’t going to be an issue for most people. That’s because everyone has an entitlement to a nil rate band of £325,000 of assets which they can leave to anyone free of inheritance tax.

"We know that many people don’t have enough for the lifestyle they'd like in retirement, so they may not have much, if any, money left in their pension(s) when they die."

Especially as it has to go further, with extra emphasis on sources of income, given increasing longevity - average life expectancy is around 80.