Having spent much of my career acting in professional executor roles, I understand more than most the practical realities of estate administration and how the upcoming changes are likely to affect those responsible for carrying it out. I suspect the operational challenges may prove every bit as significant as the tax changes themselves.

HMRC's stated objective is to reduce the use of pensions as an intergenerational wealth transfer vehicle and refocus them on their intended purpose of funding retirement. Most unused defined contribution pension funds will fall into scope for Inheritance Tax from 6 April 2027, fundamentally changing the relationship between pension administrators, personal representatives and beneficiaries.

I have spent time recently discussing the changes with those in the Pensions Industry and it has been encouraging to see that Administrators of schemes are working to understand their obligations and adapt systems accordingly. Those who deal with the administration of estates are busy doing the same for the obligations of the Personal Representative. The challenge, is that many future Personal Representatives may have little awareness of the obligations they will have under the new rules.

HMRC has already published two technical notes on the changes, and we are expecting a third before Christmas. These notes have provided some clarity, however there is still call for adjustments to be made as the new legislation brings about added complexity for all, together with particular risk for Personal Representatives, many of whom will likely be unaware of the detail around their obligations, the timescales and procedures they now need to follow.

However, there is a third group of people who also need to be making preparations – members of pension schemes. Members who take a proactive approach to managing their finances or are professionally advised may already have this in hand, but there will be many people who have only surface level knowledge of what this may mean for them, their potential IHT liability, and whomever they have appointed as Personal Representative under the terms of their Will to deal with their estate.

The real fall-out won’t be apparent until later next year, or even into 2028. By this time both Pension Administrators and Personal Representatives (whether they are professionals or individuals) will have firsthand experience of the challenges that the new legislation is introducing.

The person, or firm, responsible for dealing with someone's estate after they die is known as the Personal Representative (PR). This is usually the executor named in the Will. If there is no Will, or the executor cannot or does not want to act, a beneficiary will normally step in. Until they are formally appointed by the Court, they are known as a Prospective Personal Representative (PPR).

Whoever takes on this role is responsible for making sure any Inheritance Tax (IHT) is calculated and paid. This may include tax relating not only to the deceased's estate and pension benefits, but sometimes trusts or gifts made during their lifetime as well.

A PR can start dealing with many aspects of the estate immediately because their authority comes from the Will.

A PPR is in a different position. Although they can request information, they must wait until they have received a Grant of Representation (often referred to as ‘Probate’) before they have the legal authority to act. This can delay the administration of the estate.

There are several important deadlines to be aware of. For example, any IHT that remains unpaid six months after death will start to incur interest. In most cases, a Grant of Representation cannot be obtained until most of the IHT has been paid. In addition, the IHT position will need to be reviewed where certain values in the estate change during the administration process.

Where there is a PR, pension providers can be asked to pay the pension's share of the IHT directly to HMRC before a Grant of Representation has been obtained. A PPR will not be able to do this until afterwards, which can increase delays and potentially lead to additional interest being charged, putting estates with PPRs at a disadvantage.

PRs and PPRs can also ask pension providers to hold back up to 50% of pension benefits for a period of up to 15 months after death while the estate is administered and the final IHT position is worked out. However, many professionals feel that 15 months may not be long enough, particularly where estates are complex, involve property sales, overseas assets, trusts, or ongoing discussions with HMRC. If funds are paid out too early and more tax later becomes payable, it may be difficult to recover money from beneficiaries.

For anyone acting as a PR or PPR, understanding these responsibilities, deadlines and potential complications will be very important. Getting things right can help ensure the estate is administered smoothly, prevent unnecessary costs and delays, and reduce the risk of personal liability if mistakes are made.

There’s no doubt that the new regime will bring about a heavier administrative burden and schemes may well be considering increasing their costs in light of this.

Although PRs and PPRs will ultimately be responsible for reporting and paying the IHT due on pensions, the Pension Administrators will be required to provide information and change their practices to support the process, including sharing valuation and beneficiary data and facilitating tax payments where necessary.

In preparing for the changes and supporting members and PRs going forwards, Pension Trustees and Administrators ought to be putting in place processes, procedures and communications.

Schemes that begin preparing now will be better placed to support members and beneficiaries.

Pensions will still have a valuable place as a retirement planning vehicle. Tax-relieved contributions, tax-free cash and flexibility make them highly attractive.

However, many will wish to review their position, not only from a taxation perspective but also to understand the new burden and potential complications of not having up to date nominations and Wills.

Key actions for members could include:

The pensions industry has responded impressively to the prospect of the April 2027 changes, but the success of the new regime will depend on more than administrator readiness. Personal Representatives, beneficiaries and members must also understand their role. The challenge for schemes over the next six months, and indeed continuing into the future, is not simply compliance with new legislation; it is ensuring that those who will ultimately be responsible for administering estates are equipped to navigate an increasingly complex process.

Corrinne Emmett, Senior Business Development Manager – Zedra