For employers across the water and wastewater sector, long-term planning is part of everyday working life. Asset investment, regulatory commitments, workforce resilience and customer outcomes all require decisions that balance today’s needs with tomorrow’s responsibilities. The same principle applies when supporting employees with personal financial planning.
While inheritance tax (IHT) has often been discussed in relation to property, farming and family businesses, a major pension change is also on the horizon. From 6 April 2027, most unused pension funds and pension death benefits are expected to be included in a person’s estate for inheritance tax purposes. For employers in, leading or supplying the water industry, this could change the financial planning conversations employees need to have around retirement income, family wealth and the money they hope to pass on.
Key takeaways
- From 6 April 2027, most unused pension funds and pension death benefits are expected to be included in a person’s estate for inheritance tax purposes.
- This could affect more families than expected, especially where pension savings sit alongside property, ISAs, savings, investments and life policies.
- Encouraging employees to review their pensions, beneficiary nominations, wills and wider estate plans now can help them make more confident decisions before the rules change.
Why understanding the pension IHT changes matters
This change could lead to unexpected tax bills for some families inheriting pension wealth, particularly where someone has built up a sizeable pension and has followed the long-standing view that pensions can be a tax-efficient way to pass on money.
51% of UK adults are unaware of this significant change to pension legislation.
153,000 estates could face a new or higher inheritance tax bill between 2027 and 2030 as pension wealth is brought into scope for IHT.
Retirement planning is rarely just about choosing when to stop working. It can involve decisions about income, tax, family support, long-term care, homes, pensions and the legacy employees want to leave behind. For a sector used to managing long-term risk and resilience, the message is familiar: small changes in assumptions can have a significant impact over time.
The new reality of retirement and estate planning
For many years, pensions have often been treated differently from other assets when someone dies. Currently, unused defined contribution pension savings sit outside the estate for inheritance tax purposes. From 6 April 2027, most unused defined contribution pension funds and pension death benefits are expected to be brought into the value of a person’s estate.
That means an employee’s pension may need to be considered alongside their home, savings, investments, ISAs, life policies and recent gifts when working out whether inheritance tax could apply. For senior leaders, specialist professionals and long-serving employees across the water sector, pension wealth may form a meaningful part of the estate, particularly where it sits alongside property or other investments.
The change also arrives at a time when many people are making complex retirement decisions without regulated advice. FCA retirement income market data shows that only 30.6% of pension plans accessed for the first time in 2024/25 were accessed by people who took regulated advice. That means individuals could be making decisions about drawdown, tax-free cash, beneficiaries and estate planning without fully understanding the long-term impact.
Why it is worth encouraging employees to review their plans now
Employees do not need to make rushed decisions, but they may benefit from reviewing how their pension fits into their wider financial plan. The right approach will depend on their retirement income needs, family situation and long-term goals.
Here are six areas to think about:
- Help employees understand what could be included in their estate
An employee’s estate may include more than they think. Property, savings, investments, ISAs, life insurance held in their own name, recent gifts and, from April 2027, most unused defined contribution pension funds could all be relevant. Understanding the full picture is the first step towards making informed choices.
- Encourage employees to review how they plan to use their pension
Some employees may have deliberately preserved their pension while using other assets first, partly because pensions have often been useful for legacy planning. The upcoming rules may change that balance. They may want to consider how much income they need, whether their withdrawal strategy still makes sense and how their pension interacts with other assets.
- Remind employees to check their beneficiary nominations
A pension beneficiary nomination tells a provider who an employee would like to receive their pension benefits when they die. Pension benefits passing to a surviving spouse or civil partner will remain exempt from inheritance tax, so it is important nominations are kept up to date, especially after major life events or changes in family circumstances.
- Encourage employees to think about wills, gifting and protection
A will, gifting strategy, trust arrangement or life insurance policy may all form part of wider estate planning. These areas can be complex, so employees should seek regulated financial advice and, where needed, tax or legal advice before taking action.
- Support understanding of options that may reduce future tax liabilities
Depending on an employee’s circumstances, gifting, trusts, life insurance or wider estate planning may help them manage future liabilities and protect the value they want to pass on. These options may not be suitable for everyone, so advice is important before decisions are made.
- Encourage employees to calculate how much they may need during their lifetime
While gifting or transferring wealth can form part of inheritance tax planning, it should be balanced carefully against an employee’s own long-term needs. Before making decisions, they should consider how much income and capital they may need to support their lifestyle, health, care, housing and unexpected costs throughout retirement. Good planning should protect both the legacy they want to leave and the security they need during their lifetime.
What employers can do now
The rules are not due to take effect until 6 April 2027, but early communication can give employees more options and reduce the risk of rushed decisions. As with any long-term plan, a sensible starting point is to help people understand the current position, test their assumptions and identify where action may be needed.
- Encourage employees to list their pension pots, including workplace pensions, personal pensions and SIPPs.
- Remind employees to check who their nominated pension beneficiaries are.
- Encourage employees to review their will and make sure it reflects their current wishes.
- Prompt employees to consider how their home, savings, investments, ISAs, life policies and pension savings may interact.
- Signpost employees to regulated financial advice before they make decisions about pension withdrawals, gifting, trusts or estate planning.
- Encourage employees to talk to their family or executors so they know where important documents are held.
This is not about trying to predict every future tax change. It is about helping employees understand their current position, check whether their assumptions still hold true and make sure their retirement and estate plans work together.
For some employees, the change may make little difference. For others, it could affect how much tax their estate may face, how pension benefits are passed on, or how much administration their personal representatives need to manage after death. The important point is to help people find out where they stand before the new rules take effect.
Good workplace support can help employees balance different priorities: maintaining their own financial security, supporting loved ones, making tax-efficient decisions and leaving a legacy in the way they intend.
NFP are here to help your people confidently plan for retirement
Retirement planning works best when employees have clear, practical guidance on the financial decisions ahead. NFP helps employers provide access to regulated retirement advice and financial planning support, helping people understand their options, plan income with confidence, and make informed decisions as they prepare for life after work.
Find our more here.
