Updated: August 2026. Read time: four minutes

From 6 April 2027, most unused pension funds and pension death benefits will be brought within the scope of inheritance tax in the UK. For many years, unused pension funds have generally sat outside a person’s taxable estate, making pensions an attractive way to pass wealth to future generations. The reforms will significantly change that position.

The reforms are most likely to affect:

• People with larger unused pension funds who intended to pass pension wealth to future generations.
• People who have used pensions as part of long-term inheritance tax planning.
• Executors and personal representatives responsible for estate administration.
• Families dealing with complex estates involving multiple beneficiaries or several pension arrangements.

Who is responsible for paying the tax?

The answer may depend on the circumstances. One of STEP’s concerns is that personal representatives, beneficiaries and pension scheme administrators may all have roles within the new system, which could make administration more complex than the moment.

Is there anything executors and families can do now?

Keep good records of your finances, including pension schemes, and ensure key information can be found following a death. Keeping estate-planning documents together should help personal representatives identify relevant assets more easily.

What can I do now to prepare for the changes?

Most people do not need to take immediate action, but anyone with a sizeable pension who hopes to leave unused pension wealth to family members should review their plans before the new rules take effect in April 2027.

The changes could affect how pensions fit into wider estate planning, so it is worth checking whether existing plans still achieve the intended outcome.

Here we look at some of the myths and misconceptions about this change to help people plan ahead:

Myth: ‘everyone with a pension will pay inheritance tax from April 2027.’

Reality: not everyone will be affected.

Whether inheritance tax is payable will still depend on the overall value of the estate, the availability of exemptions and reliefs, and who inherits the assets. The changes bring most unused pension funds and death benefits into scope for inheritance tax, but that does not mean every pension or every family will face a tax charge. For example, transfers to a surviving spouse or civil partner will generally remain exempt.

Myth: ‘pensions are no longer a tax-efficient way to save for retirement.’

Reality: pensions remain one of the most tax-efficient ways to save for retirement.

The reforms affect what happens to unused pension funds on death. They do not remove the income tax reliefs and other benefits that make pensions an important long-term savings vehicle. The changes are about inheritance tax treatment, not the value of pensions as a retirement savings product.

Myth: ‘everyone should start withdrawing money from their pension now.’

Reality: not necessarily.

Some people may decide to draw more from their pension because the inheritance tax treatment is changing. However, retirement income decisions should be based on individual circumstances, future financial needs and wider tax planning considerations. For many people, preserving pension funds may still be the right approach.

Myth: ‘the reforms only affect very wealthy people.’

Reality: the greatest impact is likely to be on people with larger pension funds, but the administrative consequences may be felt more widely.

The changes could affect executors, beneficiaries and families who need to identify pension arrangements, obtain valuations and work through new reporting and payment processes.

Myth: ‘the tax will automatically be taken care of by the pension provider.’

Reality: multiple parties may be involved.

Under the new system, personal representatives, beneficiaries, pension scheme administrators and HMRC may all have a role in determining, reporting and paying inheritance tax linked to pension assets. STEP’s concern is that coordination between these parties may create complexity and delays.

Myth: ‘beneficiaries will always lose 40% of an inherited pension.’

Reality: the position can be much more complicated.

The amount of tax payable will depend on factors including the value of the estate, who inherits, and how pension benefits are eventually accessed. In some circumstances, inherited pension funds may be exposed to both inheritance tax and income tax, but the outcome will vary significantly between families.

Myth: ‘these changes only create a tax issue.’

Reality: STEP’s main concern is the administrative impact.

The House of Lords Economic Affairs Committee and other experts have highlighted concerns about the burdens that the new system could place on personal representatives. STEP has consistently warned about the potential for delays, additional costs and practical difficulties for bereaved families and executors.

Myth: ‘there’s nothing people can do before 2027.’

Reality: people have time to review their arrangements.

Anyone who expects to leave significant pension wealth to beneficiaries should consider reviewing their retirement and estate plans before April 2027. Ensuring pension records are up to date, reviewing beneficiary nominations and obtaining professional advice where appropriate may help avoid problems later.

Talk to a TEP to get expert advice about your situation.