The UK Government has confirmed major pension changes for 2027 that will affect inheritance tax rules, the State Pension age, and the outlook for retirement savings across Scotland.
Unfortunately, this is not good news. In fact, with nearly half of working-age adults making no private pension provision, the changes could have far-reaching effects for many households.
Inheritance tax on unused pensions
From 6 April 2027, most unused pension death benefits will fall within the scope of inheritance tax (IHT). However, the main exemption will be death-in-service benefits, which will remain free from IHT after industry feedback.
As a result, families could face a larger tax bill if pension savings are left untouched at the time of death. Therefore, advance planning will become even more important.
State Pension age review
Currently, the State Pension age (SPA) is set to rise to 67 by March 2028. In addition, the next planned increase to 68 is scheduled between 2044 and 2046, affecting those born on or after 6 April 1977.
There have been calls to bring this change forward. However, uncertainty around life expectancy delayed those plans. Now, with the government launching a fresh review, further increases are once again on the table.
The pension savings gap
The statistics paint a concerning picture. For example:
- More than three million self-employed people have no private pension savings.
- Low earners, women, and certain ethnic groups are less likely to contribute to a pension.
- Around 40% of people are not saving enough for retirement.
For a moderate lifestyle, the estimated annual income required is:
- £32,000 for a single person
- £44,000 for a couple
By contrast, the full State Pension is currently just under £12,000 per year. Consequently, there is a significant shortfall to bridge through workplace or private pensions.
Even with automatic enrolment in place, these figures show that pension provision remains a serious concern. As a result, the relaunched Pensions Commission will investigate barriers to saving and report back in 2027.
You can read the current legislated SPA timetable on the UK Government website.
What this means for you
With pension changes for 2027 now confirmed, it is wise to review your retirement plans sooner rather than later. By acting early, you can make tax-efficient decisions and protect your future lifestyle.
Our financial planning services can help you assess your position, plan effectively, and ensure you remain on track for the retirement you want.