Pension schemes advised to prepare early

Sacker & Partners LLP, the UK’s premier specialist law firm for pensions and retirement savings, is urging pension scheme trustees to proactively prepare for substantial changes to the inheritance tax treatment of pensions. The call follows a recent webinar where a poll revealed lingering uncertainties and practical challenges that schemes must face ahead of the new regime. From 6 April 2027, most unused pension funds and death benefits will fall under inheritance tax (IHT) rules, introducing new responsibilities and potentially significant administrative hurdles for pension schemes.

The webinar's polling indicated that over two-thirds of respondents felt quite prepared or confident about the changes. However, attendees expressed concerns about unclear specifics within the new regime, with time pressures surrounding death benefit decisions and payments cited as leading worries. The session further discussed numerous implications for trustees. These include new administrative obligations necessitating processes to respond to personal representatives, manage information requests, and address withholding and payment notices within statutory time frames.

Moreover, while potential IHT implications may influence trustees when exercising their discretion regarding death benefits, it is essential that this does not overshadow other crucial considerations when determining appropriate beneficiaries. Nearly half of the respondents indicated they would maintain their existing approach to discretionary death benefits while another significant portion plans to observe how practices evolve before making adjustments.

In terms of communication, the attendees favoured incorporating brief explanations of the changes into existing member communications like newsletters, though they must clarify that guidance is not equivalent to individual tax advice. Critical steps for trustees include confirming their scheme administrator for tax purposes, engaging with day-to-day administrators about readiness, reviewing scheme rules and member documentation, implementing necessary member communications, and reassessing privacy notices and data protection procedures.

The webinar also noted that further guidance from HMRC is still pending, implying that schemes still have vital details to navigate before the new regime's rollout. Eleanor Daplyn, a partner at Sackers, remarked, “While our polling suggests many trustees are relatively confident about their preparations, the volume and detail of questions we received shows there is still a lot to work through. The new regime will affect not only the tax treatment of certain pension benefits, but also how schemes administer deaths, interact with personal representatives and beneficiaries, and meet new deadlines." She added, “With 6 April 2027 approaching, trustees should be speaking to their administrators now and reviewing their processes, scheme documentation and member communications. While further guidance is still to come, there is plenty that schemes can and should be doing in the meantime.”