Fundamental misalignment between two systems never designed to work together, require not just technical refinement, but genuine collaboration, clearer guidance, and a realistic implementation timeline, says Caitlin Southall, Director of SSAS Transformation and Proposition at WBR Group.
I know what you’re thinking – “yet another article on IHT and pensions”. But this one might be slightly different…
The Finance Bill sub-committee released its inquiry report on 28 January, which was eagerly awaited by the industry. The report represents one of the clearest acknowledgements to date that the pensions industry’s concerns about the potential for poor customer outcomes under the reforms are being taken seriously.
The sub-committee raises specific concerns around the practical, administrative, behavioural and emotional risks of the changes, all of which have been made clear by prominent pensions professionals and professional bodies since the reforms were initially announced in the 2024 Autumn Budget.
At the heart of the report is the valid acknowledgement that the pensions system and the IHT system were never designed to interact in the way the reforms will now require. The report contains multiple references to the concerns raised about the mechanics of the changes and their very real impact on people’s lives and posthumous affairs.
Here’s five key takeaways from the report:
1. Who would want to be a personal representative (PR)?
The report quite correctly calls out that the onerous obligations required of PRs when a member passes away are going to act as a deterrent for people acting as a PR. This is likely to have consequences, not least because individuals may need to seek professional advice, which will inevitably incur additional costs.
The report correctly identifies that ‘the IHT deadline to which PRs will be subject will be incompatible with the timescales on which existing pensions processes operate’. Due to this incompatibility, there is an acknowledgment that there can be late payment interest even where PRs have acted ‘diligently’.
When responding to the initial technical consultation, we (along with many others), flagged the additional risk that PRs may be loved ones of the deceased, and therefore under additional emotional stress at a time of vulnerability. The sub-committee also flagged this specifically on several occasions in the report.
The report recommends a ‘safe harbour’ from late payment interest for PRs as long as the PR is able to evidence that they have made all reasonable endeavours but were unable to meet the deadline due to reasons outside of their control. This seems reasonable and also affirms the need for a ‘soft landing’ of the new rules due to their complexity.
The sub-committee also suggested that the current six-month deadline is extended to 12 months for IHT on pension assets for a transitional period. This is also a sensible suggestion in my opinion, allowing for more opportunity for the industry to try and smooth the journey for all.
2. Time is ticking – let’s avoid another LTA abolition situation
We saw the impact of the delayed final rules when the Lifetime Allowance was abolished, leaving providers, trustees, advisers and members left scrambling as the deadline flew closer.
The insistence that the April 2024 deadline was met notwithstanding a number of problematic and flawed iterations of the draft rules left little time to help consumers navigate the changes and put in place systems and literature. Given how seismic the IHT changes are, it’s critical that there is sufficient time to absorb the final rules and ensure they can be implemented effectively in practice.
This message is echoed in the report: ‘A lot of work will need to be done by Pension Scheme Administrators (PSAs) to update training and systems before April 2027. We are therefore concerned that, under the current timetable, the pension sector does not have sufficient time to prepare for the implementation of this measure.’
Additionally, there are multiple suggestions within the report in respect of actions that the Government should take in conjunction with the industry to enable better outcomes for consumers, including enhancements to the existing ‘Tell Us Once’ service. These improvements are likely to take time in order to get right.
3. Education, education, education
The marriage of IHT and pensions is going to be complicated. Because of the way the Government has decided to implement the changes, they are going to have to provide effective tools to help navigate and avoid a higher risk of poor client and beneficiary outcomes.
They are also going to need to bring more attention to the reforms. The report encourages the Government to ‘take action to raise awareness of the reforms’, so that people ‘are able to prepare’.
The sub-committee suggests that steps should be taken to help educate and implement, including the production of pro forma and uniform procedures.
4. Consultations should be productive, not performative
I cannot be the only person frustrated with the fact that the announcement was made in the Autumn Budget without first being consulted with the pensions industry. There have been many sensible suggestions from my peers that would equate to similar tax receipts but without the pain of shoehorning pensions into the existing IHT rules.
The report seemingly agrees with this stance: ‘While we welcome HMRC’s engagement with tax, pensions and legal sector representatives on the proposed information sharing arrangements that were announced in July 2025, we consider that it would have been far preferable for such engagement to have taken place before the Government announced these planned arrangements.’ I couldn’t have put it better myself.
5. Flexibility must be applied
The reforms clearly impact consumers and the pensions industry significantly, and there will need to be consideration for certain types of pensions where assets may not be easy to value. For example, certain types of shares or commercial property.
To that end, the sub-committee recommend applying flexibility of approach when it comes to difficult-to-value assets to avoid incurring unfair late payment fines.
Time will tell as to whether the sub-committee’s report will impact the Government’s intentions and mechanics, but the message from the report is clear: these reforms as drafted are going to result in poor outcomes.
The reforms represent a fundamental misalignment between two systems never designed to work together, and without significant amendment or adoption of the suggestions within the report, there is a very real probability of poor customer outcomes.
What’s needed now is not just technical refinement, but genuine collaboration, clearer guidance, and a realistic implementation timeline. I have everything crossed…
Main image: beatriz-perez-moya-XN4T2PVUUgk-unsplash
