Most of what has been written about the April 2027 pension change is aimed at people still saving. If you are already retired and already drawing an income, the change lands differently — and it may quietly undo a rule of thumb you were given years ago.
The short version of what changes
From April 2027, most unused pension funds are expected to be counted as part of your estate for inheritance tax. Before that, pensions sat largely outside it. Our full guide to the change covers the mechanics; this piece is about what it means if you are already spending your retirement savings rather than building them.
The assumption it overturns
For years the standard advice ran roughly like this: spend your ISAs and savings first, and leave the pension until last.
That was sensible, and for a good reason. The pension could usually be passed on outside your estate, so leaving it untouched was an efficient way to hold wealth for the next generation. Almost everyone approaching retirement in the last decade will have heard some version of it.
Once unused pension funds sit inside the estate, that logic no longer holds automatically. It does not reverse — it stops being a default. Which is the more awkward outcome, because a default is easy to follow and a judgement is not.
What actually matters now
Whether your estate is affected at all
Start here, because for a good number of households the answer is no, and everything below becomes academic. Between the nil-rate bands and how your assets are held, plenty of estates will not face inheritance tax at all. It is worth establishing that before reorganising anything.
The order you draw from different pots
This is where most of the value sits, and it is the least visible thing to get right. Pensions, ISAs, general investments and cash are taxed differently as you take them and treated differently on death. The sequence is a decision in its own right — and one of the few that can be improved without taking on any extra investment risk.
Whether you are giving money away already
Many retired households are quietly supporting children or grandchildren without calling it planning. Regular gifts made out of surplus income can be genuinely useful, but the exemption depends on being able to evidence the pattern. Households that have been helping for years are often already qualifying and simply not documenting it.
Who is actually nominated
Beneficiary nominations are routinely years out of date — made when a pension was opened, never revisited through a marriage, a divorce or a death. That has always mattered. It matters more when the money is inside the estate.
What happens on the first death, and on the second
For married couples and civil partners, assets passing to each other are generally exempt, so the revealing question is rarely what happens when the first of you dies. It is what the survivor is left holding, and what happens when they die.
That is the point at which an estate which looked comfortably below the thresholds can turn out not to be, because two sets of assets have become one. If you are planning as a couple, the second death is almost always the more informative calculation.
What not to do
The reflex — strip money out of the pension quickly to get ahead of the change — deserves real caution.
Large withdrawals are taxable as income in the year you take them, and taking a lot at once can push you into a higher band, so it is entirely possible to pay a certain tax bill now to avoid a possible one later. Whether that trade is worth making depends on the size of your estate, your income, your health and what you actually intend to leave behind. It is not a question with a general answer, and anyone offering you one without knowing your circumstances is guessing.
The other reflex worth resisting is doing nothing on the grounds that 2027 is still ahead. The useful work — understanding your position, checking nominations, seeing whether your estate is even in scope — takes very little time and is better done while there is room to act calmly.
If your estate is affected, what the levers actually are
There are fewer than the internet suggests, and they are mostly unglamorous: spending more of it yourself, giving some away within the exemptions and living long enough for it to count, holding assets that qualify for relief, and making sure life cover is written in trust so it does not add to the problem it was meant to solve.
Trusts have their place, but they earn their complexity less often than they are sold. Any structure that has to be explained to you three times is a structure you will not maintain.
Questions worth asking
- Is my estate likely to face inheritance tax at all, on current values?
- What order am I currently drawing money in, and was that order chosen or inherited?
- When did I last look at who is nominated on each pension?
- Am I already making regular gifts, and could I evidence the pattern if asked?
- Does my will still match what I am actually trying to do?
None of these require a decision today. They do require knowing the answers, which is a different thing from assuming them.
If you would like to work through your own position, the first conversation is free. We also work alongside solicitors and accountants where estate planning needs more than one set of hands.