UK pension changes: Your questions answered

Michelle Holgate
Director, Wealth Manager
RBC Brewin Dolphin

Key highlights

• Proposed pension reforms: From April 2027, pensions may be included in the inheritance tax (IHT) net and potentially taxed at up to 40%. These changes are still under consultation, with final decisions expected in summer 2025 and legislation provided subsequently.
• Planning strategies: Options like updating pension expression of wish forms, gifting surplus income to reduce IHT, and reassessing estate plans are potential planning strategies. However, premature actions, such as withdrawing pension funds, are discouraged until the rules are finalised.
• Intergenerational wealth planning: More families are involving children in financial planning, focussing on support during life rather than just leaving a legacy. Regular reviews with your wealth manager are key to remaining prepared.

Proposed changes to pension taxation in the Autumn 2024 Budget have understandably caused concern – and some confusion – among those nearing or enjoying retirement.

These changes have already influenced how people think about their pensions. In March, we ran a survey of individuals aged 45-years-old and over with pension pots of at least £300,000. The results revealed that 56% of respondents now intend to spend more of their pension in light of the proposed changes.[1]

While legislation is not yet finalised, understanding the implications is key for effective preparation. Michelle Holgate, a wealth manager here at RBC Brewin Dolphin, provides clarity on the proposed changes and potential planning strategies.

Q: Let’s start broad – what could change under the proposed pension reforms, and when could these take effect?

From April 2027, pensions will potentially be counted within a person’s estate for IHT purposes. That could mean a tax of up to 40% on any remaining pension when you pass away, depending on your estate’s total value.

But it’s crucial to note: this is still under consultation, not yet law, and there’s a significant way to go before it is. The government expects to close the consultation in summer 2025.

Although the changes are under consultation, they have nevertheless prompted some people to reassess their estate plans in case they’re enacted. This includes looking at how much they’ll need themselves in retirement, and what can be passed on.

And while it’s important to be aware and consider potential planning scenarios with your wealth manager, it’s wise to avoid making any knee-jerk decisions.

Q: Given those potential changes, are pension expression of wish forms still relevant?

Absolutely. A pension expression of wish form informs who receives your pension when you die, as pension beneficiaries are not usually determined by your will. It’s vital your form is up to date.

Many people either haven’t filled these in or have filled them in solely for their spouse or one person, leaving no ‘plan B’ or flexibility around the distribution. Whereas splitting pensions among multiple beneficiaries can reduce overall tax if done carefully, as each person’s withdrawals are taxed individually.

Some clients, confident that their spouses or civil partners won’t need the funds, are opting to nominate their children or grandchildren now, with the intention to review this as April 2027 approaches. To ensure your nominations remain appropriate and aligned with your broader estate planning goals, it’s important to consult your wealth manager.

Q: Are annuities making a comeback in light of the proposed changes?

Yes, annuities might become more popular again.

With annuities, you trade a lump sum for guaranteed income for life. They can be especially attractive for those with health issues (who might qualify for enhanced rates), or those who want income certainty.

But once you buy an annuity, the capital is gone – it’s no longer part of your estate, and there’s no going back.

It suits some, but not everyone – for example, it may not be the best option if you’ve already got guaranteed income sources that take you up to the higher or the additional tax rate.

Q: With so much uncertainty, is there a general approach you favour right now?

First, take stock: look at a detailed breakdown to understand your income sources and outgoings. Many people don’t have a detailed picture of this in writing. You also need to understand what your needs are likely to be moving forward, which might be very different if you’re pre- or post-retirement. For example, are you going to want to go on more holidays, which need to be included? Are you going to want to downsize the house, which may bring some assets? Knowing how much you’ll need to live comfortably – especially post-retirement – helps you plan realistically.

Then, meet with your wealth manager at least annually. Review how your assets are held: ISAs, pensions, general investment accounts and other investments, as each will have different tax treatments which need to be aligned with your investment and personal goals.

Q: From a broader perspective, are you seeing changes in how people think about inheritance and wealth?

Yes, these conversations are happening earlier. More clients are involving their children in financial planning, wanting to support them during life rather than just leaving a legacy after death. Think helping with property, school fees or managing debt.

It’s a return to more intergenerational thinking, with passing down wealth now a more prominent topic of discussion than it may have been in the past.

Q: Have you already started fielding a lot of questions about this?

Absolutely. It’s triggered a lot of conversation. Clients are trying to understand what this means for their lifestyle, and how they can best support their families. With pensions coming right into the mix, it’s a much wider discussion now.

The proposed changes have sparked valuable planning conversations. Although it’s always been the case that we’ve said ‘Bring your family along. Let’s start to have these conversations and manage the position as a wider family,’ it hasn’t been taken up as much as it now is. We’re seeing more people bringing professionals, such as their solicitors or accountants, into the process, as well as their children. This collaborative approach is much more efficient for exploring the best planning options for all parties.

The proposed changes have definitely highlighted the value of working with a wealth manager. They can help you proactively prepare and adapt your financial plan to stay aligned with your goals as new legislation is introduced.

Q: What are the key dates to keep in mind?

• Summer 2025: Consultation expected to close.
• 6 April 2027: Proposed changes take effect – if they’re enacted.

Between now and then, I would encourage clients to stay informed, and to have regular (and at least annual) reviews with their advisers to look at their current position and what their proposed planning actions are.

For some, it may still be beneficial to maximise pension contributions in this tax year, but the best course of action will be down to individual positions.

Remember, preparation is key, and your wealth manager can provide you with clarity on your position. Once we know the legislation, you may want to move quickly – but avoid acting prematurely. It’s important to strike a balance between your current needs and what is likely to be implemented in the future. Avoid locking in actions – like withdrawing large pension sums – until the rules are confirmed.

Pension health check ‘to-do’ list:

1. Check your expression of wishes – make sure it reflects your current wishes and consider adding alternates. Contact your RBC Brewin Dolphin wealth manager if you feel a review is needed.
2. Review your pensions – especially if you’ve had multiple jobs. Are they invested appropriately? Are they still fit for purpose? Your wealth manager can advise on how to best achieve your goals.
3. Avoid rash moves – wait for legislative clarity before making large financial shifts.

If you’re unsure about your financial position, please speak to your wealth manager.

About the author

Michelle Holgate

Director, Wealth Manager

Michelle has 20 years’ experience specialising in providing financial advice on IHT planning, pensions, investments, and trusts to high-net-worth clients across the UK.

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The value of investments, and any income from them, can fall and you may get back less than you invested. This article is for informational purposes only and does not constitute financial, tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy.

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[1] Surveyed conducted by Findoutnow on behalf of RBC Brewin Dolphin on 1,045 UK adults, 1,001 of which were aged 45+, with pension pots of over £300,000 between March 17th and March 23rd, 2025.