The Carbon Compass: monthly news insight

Preparing for Change: The Latest Pension & Estate Planning Updates

This month has brought several important developments across pensions, inheritance tax, and retirement planning, with a clear focus on reform, simplification, and long-term sustainability.

Inheritance Tax & Pensions

One of the biggest updates this month is HMRC’s publication of new guidance explaining how pensions will be treated under inheritance tax (IHT) rules from April 2027.

The guidance provides greater clarity on how pension assets will be valued within estates and confirms how certain reliefs may apply to reduce the risk of double taxation on pension death benefits. It also confirms that existing gifting exemptions can still apply where pension withdrawals are used as part of regular gifting strategies.

Alongside this, the Treasury has confirmed there will be no extension to current IHT payment deadlines once pensions fall within the IHT regime. While these changes are still some way off, they reinforce the importance of proactive estate planning and reviewing pension arrangements well in advance.

Pension Access Age Increasing

HMRC has also issued provisional guidance on the planned increase to the Normal Minimum Pension Age (NMPA), which will rise from 55 to 57 in April 2028.

Importantly, transitional protections are expected for individuals already accessing pension benefits before the rule change takes effect. Existing drawdown arrangements and benefits already in payment are expected to continue without disruption, helping provide reassurance for those approaching retirement.

Concerns Around Retirement Saving

The Pensions Commission has raised growing concerns around retirement saving levels across the UK. Its interim report found that around 45% of working-age adults are not currently saving into a pension, while many savers contribute only the minimum required through Automatic Enrolment.

The report also highlighted particularly low pension participation among the self-employed and warned that many people are accessing pension funds too early, potentially reducing future retirement income. The Commission believes current trends could create significant retirement income gaps over the coming decades, with further recommendations expected in 2027.

Major Pension Reforms Introduced

This month also saw the Pension Schemes Act 2026 receive Royal Assent, introducing major reforms across the pensions industry.

The legislation includes:

• Automatic consolidation of small pension pots
• New “Value for Money” standards for pension schemes
• The creation of larger pension “megafunds” designed to improve efficiency and long-term investment opportunities

The overall aim is to create a pensions system that is simpler to manage, more transparent for savers, and better positioned to deliver stronger retirement outcomes over the long term.

Estate Planning Remains Essential

Finally, recent research has highlighted a continued rise in inheritance disputes, often linked to outdated or missing wills and poor family communication.

Blended families, divorced individuals, and cohabiting couples were identified as being particularly vulnerable to disputes. With many individuals still lacking appropriate estate planning arrangements, this serves as a timely reminder of the importance of keeping wills and financial plans up to date.

As always, if you have any questions about how these developments may affect your financial plans, please don’t hesitate to get in touch with the team at Carbon Financial Partners.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action. Tax and Estate Planning Services are not regulated by the Financial Conduct Authority. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.