By Steve Conley, Founder – Academy of Life Planning
“Do we plan for what is, or for what is coming?”
It’s a question increasingly asked of financial planners as we edge closer to April 2027—the date when unused pension pots may no longer remain exempt from Inheritance Tax (IHT), following proposals made in the 2024 Autumn Budget.
The change is not yet law. But for clients in their late 70s, who deferred taking benefits under pension freedoms introduced in 2015, the clock is ticking—both biologically and legislatively. The dilemma facing ethical advisers today is not just how to plan wisely, but how to do so with full integrity and transparency, while avoiding conflicts of interest that may lurk in fee structures or product incentives.
A Double Tax Trap for Beneficiaries
Currently, pension pots outside of an estate are passed free from IHT and are only taxed as income upon withdrawal by the beneficiary. From April 2027, however, if the proposed changes are enacted, these same pots may attract IHT and income tax—creating an effective marginal rate of 52% to 67% (71% in Scotland) depending on the beneficiary’s income bracket.
That’s a hefty price for waiting.
So, what happens if the individual draws down now, gifts the funds, and doesn’t survive seven years? The income is taxed at their marginal rate today, and the gift is treated as a Potentially Exempt Transfer (PET), triggering IHT liability if they pass prematurely. Yet if they do nothing and the rules change, a lifetime of savings could be taxed twice.
This is not a technical riddle. It’s a deeply human one. And for advisers, it’s a test of ethics.
Two Schools of Thought – Same Firm, Different Outcomes
Take the polarising examples emerging even within the same advice networks, such as St. James’s Place:
- In one case, an adviser anticipates the rule change and helps clients gift from pension income now, applying the “gifts out of normal expenditure” exemption—minimising future IHT and encouraging proactive legacy planning.
- In another case, an adviser ignores the pending reform, bases advice strictly on current law, and recommends expensive life insurance products to “cover” a tax that doesn’t yet exist—earning significant commission in the process.
Both positions can be defended, but only one considers the spirit of the client’s needs as well as the letter of the law.
Advice Under Ambiguity: What Is Ethical?
Technically, advice should be given on the law as it stands. But is it ethical to ignore material changes that are all but confirmed in policy direction?
More to the point: is advice truly impartial if doing nothing increases adviser fees—either through ongoing percentage-based charges on untouched pots or commission on tax-mitigation products like life insurance?
Too many planning conversations treat clients’ tax liabilities as planning tools to extract value—for the adviser. What is needed is a reframing of fiduciary duty around what is fair, transparent, and client-centred in the face of legislative uncertainty.
Compliance Note: FCA Perspective on IHT & Pension Planning
Under current FCA rules, suitability of pension advice must be based on existing law, not speculative future tax changes. The FCA’s Retirement Income Advice Assessment Tool (RIAAT) confirms that pensions are generally outside the estate for IHT purposes and recommends drawing from non-pension assets first for tax efficiency.
Advisers must therefore ensure recommendations are appropriate today, while clearly explaining possible future changes. Where clients wish to act early due to health, legacy goals, or personal values, this can be supported—but it must be fully documented, client-led, and free from adviser conflict (e.g. ongoing AUM fees or insurance commissions).
The FCA has not yet issued detailed guidance on the 2027 proposals but does encourage firms to help clients consider future scenarios—provided support is balanced, factual, and non-misleading.
The Right Path Is Balanced and Transparent
Here’s what ethical advisers can do now:
- Present both scenarios equally. Model both outcomes—rule change and no rule change—so clients can make decisions aligned with their values and risk profile.
- Highlight all costs and incentives. Disclose adviser fees, commissions, and legacy impacts in real terms.
- Document decisions. Keep records of the rationale, especially if gifting under “normal expenditure” or relying on PET exemptions.
- Avoid fear-based sales tactics. Insurance may have a role, but only where genuinely appropriate—not as a knee-jerk commission opportunity.
📦 What Are Advisers Saying About Waiting for the Rules to Change?
“Advisers are currently telling clients ‘don’t do anything; wait till the proper rules come out’, while planning what to do when they do.”
— Michael Beveridge, BNY Investments
Many advisers are choosing caution over action. With the proposed inclusion of unused pension pots in Inheritance Tax from April 2027 still awaiting confirmation, some are urging clients not to take irreversible steps—yet.
“While the rules could still change, advisers are currently urging clients not to make changes now.”
— BNY Investments Report
Even as they develop contingency strategies, planners are mindful of the risk of premature action—especially for those concerned about sequencing risk and the seven-year IHT clock.
“If the IHT changes come in – and it is an if – we will have to be much more thoughtful of protecting that income…”
— Michael Beveridge
This wait-and-see approach reflects a broader trend: the tension between policy uncertainty and responsible client strategy. Yet the conversation has begun—and advisers are rethinking long-held assumptions about pensions and legacy planning.
Conclusion: Serve the Client, Not the Clock
We live in a time where public trust in financial advice is fragile. Ethical life planning means helping people make informed, emotionally-resonant choices—not exploiting complexity for gain.
Whether or not the proposed pension IHT changes become law, life will go on. But it’s how we advise today, under the shadow of change, that defines who we are as planners—and who we serve.
Steve Conley
Founder, Academy of Life Planning
“Reclaiming planning for people, not products.”
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