Nine out of 10 pensions savers are unaware that pension will shortly be brought within inheritance tax, according to new research.
This survey, by Standard Life, comes just one year out from a major overhaul of the IHT rules, which will see DC pensions brought within its scope fro the first time.
The changes were announced in the 2024 Budget by the chancellor, Rachel Reeves, but 89 per cent of sales have ‘little or no awareness’ of the change.
The Government estimates an additional 10,500 estates will be brought into paying IHT due to the change in 2027/28 as a result of these changes, with around 38,500 estates facing higher IHT bills than under previous rules.
The immediate effects are likely to be felt by Gen X, the generation currently most involved in supporting older relatives and managing intergenerational wealth.
However, the research shows a substantial knowledge gap among this cohort, with only one in seven Gen X adults saying they have a ‘good’ understanding of how IHT works.
Standard Life says industry support will be crucial moving forward. Overall, 30 per cent of adults think their estate will exceed the IHT threshold, rising to 40 per cent of millennials and 36 per cent of Gen Z.
Even among those who may ultimately fall below the threshold, the current lack of understanding highlights the importance of clear insight, guidance and advice.
Standard Life tax and estate planning specialist Neil Jones says: “With the clock ticking on the final year before pensions fall within the scope of IHT, it’s concerning, though not surprising, that awareness of the change remains so low.
“Most estates currently fall below the thresholds for paying IHT, which can be up to £1 million for a surviving spouse with a home, so individuals and their families often only engage with IHT when they have to.”
But he points out that with frozen IHT thresholds and rising property prices, one in 10 estates are expected to exceed the threshold, so IHT will be something far more people will need to understand and plan for, which will include pension planning.