Ominous pension rule changes could affect your retirement

Draft legislation confirms that, from 6 April 2027, most unused pension death benefits will be brought into the IHT net. While death-in-service benefits have been excluded following industry feedback, the move could have serious implications for those intending to pass on pension wealth tax-free. Reviewing pension structures before these rules take effect could help mitigate exposure.

By March 2028, the SPA will rise to 67, with a further increase to 68 currently scheduled for between 2044 and 2046, affecting those born on or after 6 April 1977. Although proposals to accelerate this timetable have been paused due to life expectancy uncertainty, the government’s latest announcement signals that earlier increases remain possible. Any acceleration would have significant consequences for retirement planning timelines and the age at which people can access their State pension entitlement.

Alongside these changes, the government has highlighted the continuing shortfall in private pension savings. More than three million self-employed people are without such savings, and low earners, women, and some ethnic groups are less likely to be contributing. Overall, around 40% of the working-age population are not saving enough to secure their desired standard of living in retirement. The Pensions and Lifetime Savings Association estimates that a single person now requires around £32,000 a year for a moderate retirement lifestyle, rising to £44,000 for a couple. With the full State pension worth just under £12,000, the gap that private provision must fill is significant.

Automatic enrolment has improved participation rates, but it is not delivering adequate retirement incomes for many. The relaunched pensions commission will report in 2027 on the barriers to greater saving, and further reforms are expected. In the meantime, individuals should take steps now to review and strengthen their retirement plans, considering both the IHT changes and the potential for a higher SPA. Those who want to understand their options and ensure their pension arrangements remain fit for purpose should seek professional advice without delay. The currently legislated SPA timetable can be found on the UK government website.