How upcoming inheritance tax changes could make multiple pension pots more complicated than you expect
Over the course of a working life, it is entirely normal to build up more than one pension. Career moves, employer changes and evolving workplace schemes mean many people finish their careers with a collection of pension pots spread across multiple providers.
In fact, the average UK adult will hold numerous pension arrangements by retirement age — some actively managed, others forgotten entirely. While this has long been an administrative inconvenience, forthcoming changes to how pensions are treated for inheritance tax (IHT) purposes mean that disorganised pension arrangements could soon create far greater complications, not just during your lifetime, but for your family after you’re gone.
Pension consolidation is not about simplification for its own sake. It can also help improve clarity, control and ensuring your retirement and estate planning remain aligned with changing legislation.
A common but overlooked issue: multiple pension pots
Most people do not deliberately set out to accumulate multiple pensions. It happens gradually — a scheme from an early employer here, a workplace pension there, perhaps a personal pension or SIPP added later.
Over time, this can lead to:
- Limited visibility over total pension wealth
- Inconsistent investment strategies
- Varying retirement options and beneficiary rules
- Forgotten guarantees or benefits
- Outdated beneficiary nominations
When left unmanaged, these pensions may drift away from your long-term objectives. More importantly, they may no longer reflect your wider financial position, family structure or estate planning priorities.
How proposed April 2027 changes may impact pension planning From April 2027, unused pension funds are expected to be included within estates for inheritance tax purposes. While pensions have traditionally sat outside the taxable estate, forthcoming legislation will fundamentally change how pension death benefits are assessed and reported.
Under the proposed framework:
- Legal Personal Representatives (LPRs) — executors or court-appointed administrators — will be responsible for reporting all pension values when calculating IHT
- Pension schemes must provide valuations, but LPRs must identify and coordinate across all providers
- The IHT position will depend on who inherits each pension, whether exemptions apply, and how benefits are structured
The result is a far more complex administrative process, particularly where multiple pension schemes are involved.
Why multiple pensions can increase estate complexity
When someone passes away with several pension pots held across different providers, their estate representatives may face significant challenges.
These can include:
1. Locating every pension arrangement
Not all pension providers are easy to identify, particularly if paperwork is outdated or schemes date back decades. Missing even one pension could delay estate administration or create compliance risks.
2. Valuations from multiple scheme administrators
Each pension provider must be contacted individually for valuations, often working to different timescales and processes.
3. Understanding who each pension is payable to
Some pensions may pay to a spouse or civil partner (potentially exempt from IHT), while others may not. Without clarity, calculating the correct IHT liability becomes difficult.
4. Managing tax payments within tight deadlines
Inheritance tax is generally due within six months of death. Interest currently applies at 8% on late payments, meaning delays caused by pension complexity could prove costly.
5. Cashflow risks for beneficiaries
In some cases, pension providers may be instructed to withhold up to 50% of death benefits until tax liabilities are resolved. This can create financial strain for dependants who rely on those funds.
How pension consolidation can help
While consolidation is not suitable in every case, it can offer meaningful advantages when implemented as part of a holistic wealth plan.
Reduced administrative burden
Holding pensions within a single, well-structured arrangement makes it significantly easier for executors to identify, value and report assets.
Improved investment alignment
A consolidated pension allows investments to be aligned with your risk profile, time horizon and broader portfolio, rather than spread across legacy default funds.
Greater retirement flexibility
Modern pension structures often provide more flexible drawdown options, clearer death benefit rules and improved beneficiary control.
Clearer estate planning outcomes
Fewer pension arrangements make it easier to review beneficiary nominations regularly and ensure your intentions remain clear.
Lower risk of errors, delays and penalties
Streamlined pension arrangements reduce the likelihood of missed assets, miscalculations or late reporting.
Important considerations before consolidating
Pension consolidation should never be undertaken without proper review. Some older pensions may include:
- Guaranteed annuity rates
- Protected tax-free cash entitlements
- Valuable defined benefits
- Lower charges or unique features
A thorough assessment is essential to ensure consolidation does not mean giving up benefits that cannot be replaced. Consolidation may also involve exit charges, changes to investment risk, differences in protection levels, and the loss of certain guarantees or features that cannot be recovered once transferred.
At Blacktower, pension consolidation is never treated as an isolated transaction. It forms part of a wider retirement and estate planning conversation, taking into account tax, income needs, family circumstances and long-term objectives.
Planning ahead means protecting those you leave behind
The upcoming changes to pension inheritability mean that organisation now matters more than ever. While pensions remain a powerful long-term planning tool, failing to review and rationalise arrangements could unintentionally pass complexity, cost and stress onto loved ones.
Consolidation, where appropriate, can help ensure:
- Your retirement strategy remains coherent
- Your estate is easier to administer
- Your beneficiaries receive what you intend, when they need it
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
The Pensions Regulator (TPR) has recently acknowledged that pension scammers are being caught out and hindered by action from the government, regulators, the Work and Pensions Committee, and the wider industry, but added that vigilance is still needed.
For many retirement savers finding the best way to realise pension plan benefits will be the key to unlocking a financially secure retirement.