Richard Cooper, Business Development and Accreditation Manager for Financial Services at LIBF, part of Walbrook Institute London, explains how paraplanners can best identify and support clients whose estates may be impacted by the 2027 rules bringing unused pension funds and death benefits into the scope of inheritance tax.
The decision to bring most unused pension funds and death benefits into the scope of Inheritance Tax (IHT) from 6 April 2027 represents one of the most significant estate planning changes in recent years.
For many clients, pensions have formed a cornerstone of intergenerational wealth planning. Advisers have frequently recommended preserving pension assets while drawing on ISAs, investments and cash deposits because pension funds sat outside the estate for IHT purposes.
While pensions will remain highly tax-efficient vehicles for retirement saving, the 2027 changes mean that existing assumptions around decumulation and estate planning will need to be re-examined.
For paraplanners, now is the time to identify affected clients, review existing recommendations and ensure planning remains fit for purpose.
Rethinking the ‘preserve the pension’ strategy
One of the most important consequences of the new rules is that pension assets can no longer automatically be viewed as the ideal wealth transfer vehicle.
Many retirement income strategies have been built around preserving pension funds for heirs while using other assets to support the client during their lifetime. Once unused pension funds become subject to IHT, that approach may not always produce the best outcome.
This does not mean clients should rush to withdraw pension funds. Any withdrawal strategy must still consider income tax, investment growth and long-term sustainability. However, future recommendations should be based on a holistic assessment of both retirement and estate planning objectives.
Cashflow modelling will be critical in assessing whether a pension-first, ISA-first or blended withdrawal strategy is most appropriate.
Reassessing estate values
A practical starting point is to re-evaluate estate values by including pension assets.
Many clients who currently have little or no projected IHT exposure may find themselves over relevant thresholds once pension funds are factored into the calculation.
A comprehensive review should include:
- Pension funds
- Property assets
- Investment portfolios
- Cash holdings
- Business interests
- Existing trust arrangements
This exercise alone may identify clients who require an immediate review of their planning arrangements.
Prioritising at-risk clients
Not every client will be significantly affected by the changes, so firms may benefit from adopting a structured approach.
Priority should generally be given to:
- Clients with substantial defined contribution pension funds
- Higher-net-worth households
- Clients actively preserving pensions for beneficiaries
- Retirees drawing minimal pension income
- Clients approaching or above age 75
Developing a client segmentation exercise now can help firms focus resources where they are likely to deliver the greatest value.
Reviewing beneficiary nominations
Expression of wish forms remain an important part of pension planning and should not be overlooked.
Although the IHT treatment of pensions is changing, beneficiary nominations will continue to influence how death benefits are distributed and can help ensure benefits are paid in line with the client’s wishes.
Many nomination forms become outdated following major life events such as marriage, divorce, the birth of children or the death of a beneficiary.
A systematic review of nominations should form part of any wider pension and estate planning exercise.
Maximising spousal planning opportunities
The spouse and civil partner exemption remains a valuable estate planning tool.
For many married couples, the efficient transfer of assets between spouses will continue to play an important role in reducing overall IHT exposure and preserving planning flexibility.
Paraplanners should ensure beneficiary arrangements remain aligned with wider estate planning objectives and that available exemptions are fully considered within any recommendation.
Understanding post-75 death benefits
The interaction between inheritance tax and income tax is likely to become an increasingly important area of planning.
Where death occurs after age 75, beneficiaries may already be subject to income tax on withdrawals from inherited pension funds. The addition of IHT creates the potential for significantly higher overall tax liabilities in some cases.
This makes scenario testing particularly valuable.
Paraplanners should model outcomes based on:
- Age at death
- Value of pension funds
- Beneficiary circumstances
- Timing of withdrawals
Understanding the potential impact on beneficiaries will help advisers deliver more informed recommendations.
Revisiting gifting strategies
The new rules are also likely to increase interest in lifetime gifting.
Clients who have accumulated significant pension wealth with the intention of passing it on to future generations may wish to explore alternative approaches. Recent research by Rathbones suggested that increasing numbers of wealthy grandparents are gifting money towards their grandchildren’s university education.
Potential planning opportunities may include:
- Potentially Exempt Transfers
- Gifts out of surplus income
- Family assistance arrangements
- Educational funding strategies
Any gifting strategy should remain aligned with the client’s long-term financial security and be supported by appropriate records and documentation.
The role of trust planning
Trust planning is unlikely to be suitable for every client, but it may become increasingly relevant as advisers reassess estate planning strategies.
For some households, trusts can provide flexibility, control and opportunities for longer-term wealth preservation.
Paraplanners should ensure they remain familiar with the circumstances in which trust-based solutions may be appropriate and be prepared to support advisers in evaluating their suitability.
Reviewing protection planning
The pension changes may also increase the importance of protection-based estate planning.
Clients with significant projected IHT liabilities may wish to explore solutions designed to provide liquidity on death, helping beneficiaries meet tax liabilities without forcing the sale of other assets.
As part of wider estate planning reviews, paraplanners should consider whether protection needs have changed because of the new rules.
Bringing retirement and estate planning together
Perhaps the most important lesson from the 2027 changes is that retirement planning and estate planning can no longer be treated as separate disciplines.
Advice around pension withdrawals, gifting, investments and succession planning has become increasingly interconnected.
As a result, paraplanners will need to look beyond product recommendations and focus on the broader financial planning picture, helping advisers assess how decisions made during retirement can affect outcomes for future generations.
Paraplanner action checklist
Before April 2027, consider the following review points:
✓ Reassess estate values including pension funds
✓ Identify clients most exposed to the changes
✓ Review existing decumulation strategies
✓ Update cashflow modelling assumptions
✓ Audit all beneficiary nominations
✓ Review spouse and civil partner planning
✓ Model post-75 death benefit scenarios
✓ Evaluate gifting opportunities
✓ Consider trust planning where appropriate
✓ Assess protection requirements
✓ Ensure retirement and estate planning recommendations are aligned
Conclusion
The inclusion of unused pension funds in the IHT regime marks a significant shift in financial planning. While pensions remain highly effective retirement vehicles, their role within estate planning has fundamentally changed.
For paraplanners, the challenge is not simply in understanding the new legislation. It is in helping advisers reassess long-held assumptions and identify opportunities to improve client outcomes.
Those firms that begin reviewing pension-rich clients now are likely to be best placed to navigate the transition and demonstrate their value in an evolving planning environment.
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