Trustees and pension managers should use next year’s changes to the treatment of pensions under inheritance tax (IHT) as an opportunity to review member communications and reduce confusion around death benefits, LCP has argued.

The proposed reforms will come into effect in April 2027, when most defined contribution (DC) pension pots, and some other pension scheme death benefits, will typically be included in a member’s estate for IHT purposes.

LCP warned in its blog that the implications go beyond explaining new tax rules, outlining a series of recommendations for pension schemes ahead of the changes.

In particular, it said schemes will need to help members understand which benefits are affected, how to record their wishes and what their beneficiaries may need to do after their death.

To support this, it recommended providing clear and proportionate communications that explain the implications of the reforms and any actions members may need to take, without suggesting that everyone will face an IHT charge or needs to change their plans.

LCP partner, Alasdair Mayes, commented: “The starting point is understanding which benefits are affected, rather than assuming all death benefits will be treated in the same way.

"A member’s DC pension pot and insured death-in-service benefit may sit alongside each other but have different nomination processes and different inheritance tax treatment.

“Schemes should use the time before April 2027 to identify where those differences could cause confusion and make sure members and their families know what to expect.”

In addition, LCP highlighted potential confusion around separate nomination processes for DC pension pots and insured death-in-service benefits, which can be administered by different organisations and may also receive different tax treatments.

It therefore urged schemes to link expression of wish processes through prompts and signposts, so members know when they need to record their wishes in more than one place.

LCP partner, Hayley Williams, said: “Completing one expression of wish form may feel like the job is done. Members may not realise that another benefit needs a separate nomination, particularly when both are linked to the same employer.

“Clear prompts, links between processes and coordinated reminders can make taking the next step easier.

“The aim should not simply be to tell members that the rules are changing, but to help them understand what they can do and make things easier for their loved ones when the time comes.”

LCP also recommended targeted communications for members who have reached their target or normal retirement age without accessing their DC pension savings, suggesting prompts to help them understand the changes and whether financial advice may be appropriate.

It encouraged schemes to support bereaved families through tailored guides or checklists and to monitor whether communications are driving action through measures including nomination completion rates and member enquiries.

LCP added that beneficiary nominations will become a more prominent measure of member engagement under the proposed value for money framework, creating an opportunity to assess whether communications are helping members act rather than simply being issued.

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