Royal London: Key pension planning changes for 2027–2029

The next three years will bring significant changes to UK pensions, affecting death benefits, the normal minimum pension age (NMPA) and salary sacrifice.

These reforms are likely to have a direct impact on suitability reports, cashflow planning, estate planning and client queries. This article explores the key changes and highlights the most important planning considerations.

Inheritance tax for pension benefits (2027)

From 6 April 2027, most unused pension funds and pension death benefits are due to be included in a person’s estate for inheritance tax (IHT). This challenges the long-held mantra of ‘spend the pension last as it’s not subject to IHT’.

Advisers may need to revisit estate valuations, beneficiary planning and report assumptions, especially where large defined contribution pots are intended for family wealth transfer.

The deceased’s personal representatives will remain responsible for reporting and paying any IHT due on pension assets, with scheme administrators potentially supporting the process. Administrators may be asked to withhold part of the death benefits payable to non-exempt beneficiaries for up to 15 months to ensure funds are available to cover IHT charges.

Expression of wish forms will still matter but may need revisiting to optimise the likely tax position

This is most likely to happen where the beneficiaries of the pension and the remainder of the estate differ. This may delay payments and increase administration after death.

Planning considerations:

The main planning question is no longer simply who is nominated to receive benefits, but how pension assets fit within the wider estate.

Nil-rate bands, residence nil-rate bands, beneficiary choice and charitable legacies may all need reworking if pension funds increase the taxable estate. Expression of wish forms will still matter but may need revisiting to optimise the likely tax position.

It may be necessary to consider funding other assets to provide a source of funds until the pension can be accessed

This change is also likely to increase the need for joined-up estate planning. Some clients may be better served by reviewing gifting, trusts, charitable legacies or life cover rather than assuming pension funds remain an efficient asset to leave untouched.

Advisers may also need to flag where pension death benefits may be more tax efficient if passed to spouses or civil partners, or to skip generations in favour of those in lower tax bands.

Normal minimum pension age increase (2028)

From 6 April 2028, the NMPA is due to rise from 55 to 57. For clients planning to retire early, this may affect pension withdrawals, tax planning and short-term income needs, particularly where pension benefits at 55 or 56 were intended to provide income.

It may be necessary to consider funding other assets, Isas for example, to provide a source of funds until the pension can be accessed.

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HMRC’s April 2026 newsletter suggests a transitional approach under which benefits already in payment, or entitlements that arose before 6 April 2028, may continue as authorised payments after that date.

In most cases, however, new benefit crystallisations will not be permitted before age 57 unless an exception applies, such as a protected pension age or ill-health. Scheme rules remain important, so not all arrangements will operate identically.

Planning considerations:

In practice, this increases the importance of checking scheme-specific protections and identifying the exact age at which benefits can be taken from a particular scheme.

It’s important to note that salary sacrifice is not being capped at £2,000, only the NI savings that can be made

Clients with multiple pensions may have different minimum access ages, which can complicate retirement modelling. Advisers should revisit cashflow forecasts, pension commencement timing and any recommendations that rely on benefits being available before age 57.

Salary sacrifice NI cap (2029)

From April 2029, the national insurance (NI) savings available through pension salary sacrifice will be capped at £2,000 per annum. For individual clients, the NI saving may be reduced, particularly for higher earners sacrificing larger amounts of salary, or others making significant pension contributions.

The key issue is whether salary sacrifice still delivers the expected savings used in contribution planning or fund projections. It’s important to note that salary sacrifice is not being capped at £2,000, only the NI savings that can be made.

Taken together, these reforms are likely to affect estate structuring, retirement timing and contribution strategy

Pension contributions made by salary sacrifice remove the need for those paying income tax at a rate greater than 20% needing to claim excess relief from HMRC, making it a valuable strategy even above the incoming cap.

Planning considerations:

Where recommendations involve salary sacrifice, it may be sensible to revisit illustrations and contribution comparisons ahead of 2029. The cap could alter the perceived efficiency of contributions for some clients and affect conversations around pension versus Isa funding, bonus exchange or wider remuneration planning.

Looking ahead

Taken together, these reforms are likely to affect estate structuring, retirement timing and contribution strategy. The practical impact will be in the detail: checking scheme rules carefully, revisiting reports and cashflow assumptions.

This also creates an opportunity for proactive file reviews. Cases involving pension death benefits, early retirement, large defined contribution pots or salary sacrifice funding may all warrant reconsideration before the relevant implementation date.

Advisers will be well placed to identify where existing advice assumptions need to change and where clients may need updated recommendations.

Justin Corliss is technical and pensions expert at Royal London