Pension savers have been encouraged to consolidate scattered defined contribution (DC) pensions to ease the administrative burden for their families when the new inheritance tax (IHT) rules come into effect in April 2027.

Unused pension pots will be liable to IHT charges from April 2027, following the Finance (No. 2) Bill receiving Royal Assent in March.

According to Evelyn Partners, the forthcoming changes are already having an impact, with some pension savers deciding to take their tax-free lump sum, draw down more heavily on their pension pots, or buy annuities.

However, the firm suggested that consolidating small pots was another option.

Evelyn Partners pensions technical specialist, Andrew King, said: “Pension consolidation can be a good move for a number of reasons, but the inclusion of unused pension pots in IHT liabilities will add extra urgency for many families.

"This is because having several, scattered defined contribution pension pots could land their personal representatives with a real admin headache, interest charges from HM Revenue and Customs and potentially a lot of stress.”

The government recently rejected the House of Lords’ recommended extension of the initial IHT payment deadline for families from six to 12 months after bereavement.

King continued: “The way the rules have been drawn up for IHT from next April, the personal representatives will have to go to each pension provider and try to access funds within the six-month deadline from death for the payment of IHT.

"Where there are several pension pots with different providers, this could not only prove a heavy administrative burden but also potentially hit the estate with interest charges.”

Meanwhile, a recent Barnett Waddingham survey found that 62 per cent of UK employees are unaware of the forthcoming IHT pension changes.

When asked specifically about IHT planning and pensions, over two thirds (67 per cent) said they were concerned about the administrative burden placed on their family, 58 per cent were concerned about not knowing how much was in their pension, or where the pensions were, and over half (55 per cent) were concerned about their family having to deal with multiple pension providers after death.

Barnett Waddingham head of DC pensions, Mark Futcher, commented: “It’s clear that the upcoming changes are creating a split in behaviour. While our findings show many remain in the dark about what’s coming, recent headlines suggest those who are aware are hitting the panic button – pulling out lump sums to avoid future tax bills.”

“This highlights the risk of making long-term financial decisions in the heat of the moment.

"Acting too quickly could store up problems for later, from reducing retirement income to creating additional tax liabilities.

“Employers and workplace pension providers have a critical role to play here, and should be acting as a steady hand on the tiller when uncertainty like this arises.

"By engaging and offering targeted education, they can help employees navigate what’s ahead with confidence, rather than making decisions they may come to regret in years to come.”

Echoing these concerns, nearly three in five (59 per cent) UK adults said they found IHT rules confusing, according to research from Canada Life, while just 15 per cent felt confident about how much they could gift each year without it counting towards IHT.

The research highlighted particularly low levels of understanding, with only six per cent who described their grasp of the rules as very clear, revealing a widespread knowledge gap that could leave families at risk of inefficient estate planning.

In addition, Scottish Widows’ Investor Confidence Barometer found that nearly six in 10 advisers (57 per cent) said their clients remain uncertain about the IHT pension changes.

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