Adviser view: How pensions and IHT are shaping client conversations

One of the most notable regulatory changes facing advisers is now less than a year away. From 6 April 2027 most unused pensions and pension death benefits will form part of the estate for inheritance tax. We spoke to one adviser to see how they’re getting ready and to find out how they think the changes may impact the industry.

Here’s what they had to say…

“Even clients not worried about preserving a legacy understand they need to act”

A lot of my clients are in their late sixties and early seventies, so these changes are front of mind and the timings quite important. Previously, they were sitting on their pensions for asset preservation and to avoid paying income tax. But now there’s an understanding that if they don’t do something with their pension their dependents will pay income tax and inheritance tax (IHT) anyway.

It’s worth saying that preserving a legacy is lower on my clients’ priority list than enjoying retirement. But, of course, paying IHT is even lower on the list. So, even those who were less concerned with preserving a legacy are now proactively having to do something to avoid IHT.

“Clients sharing their ideas with me helps avoid bad decisions”

This awareness that they need to act has led to some helpful conversations with clients. I’ve been asked about strategies which could result in knee-jerk reactions if they didn’t have someone to run them past first.

For example, a client says: “I might as well take my tax-free lump sum and put it in trust.” The value of advice is they come to me and I can explore the consequences of that, ask what kind of trust, who the trustees are going to be, and consider the goal within their wider plans. I help clients take a step back and think about the practicalities rather than just, “I’ll do this because I read it in the money pages.”

“A structured approach makes sure clients are reminded of what’s changing, and what’s important”

Having a smaller client bank means the changes have less impact on business processes. However, I am being a bit more structured around the touch points I have with clients throughout the year as a matter of good housekeeping: making sure the relevant information like wills are up to date ahead of the IHT changes. I’m also being more specific with the numbers – making sure clients are aware they may pay inheritance tax on whatever amount they likely wouldn't have paid before the 6 April 2027.

“The increasing level of detail creates pressure in processes”

I’m part of a network and the annual review process is quite black and white; you arrange the meeting, see the client, write up the notes and the suitability report and off you go to the next one. This all has to be done within a fixed time frame. The upcoming changes mean it can be difficult to get up-to-date IHT calculations and fully explain all the practicalities to your clients within the time scales.

Platforms and providers could help here by making sure all their data and information is bang up to date when you need it. It’s frustrating when you’re preparing for a meeting and then find out that the figures in front of you are wrong.

Ultimately, all the questions about IHT and pensions are going to be more about how it's implemented. If, say, a client's got five pensions, making sure IHT is accounted for will be quite complex but the net outcome to the estate is going to be the same.

To be honest, in principle I don't think tackling this will be any different than any other change that’s been looming. Further shifts are always possible, say, under the new chancellor. If a client's retiring at 60 and spending potentially 40 years in retirement, obviously there will be changes big and small over that time, even outside IHT and pensions.

The ethos of financial planning is all about a plan that’s robust enough for any changes down the road – we can only plan based on what is known now and take the shifts as they come.

If I’m recommending particular strategies or products which could be affected by change in the near or distant future, it’s vital I’ve a plan for negotiating this uncertainty and crucially, that my clients know about it.