The forthcoming changes that will bring unused pension pots into the scope of inheritance tax (IHT) are having a broader impact on pensions confidence, despite the majority of people being unaffected, analysis from Standard Life has shown.

It found that 22 per cent of UK adults said their confidence in pensions had fallen since the new rules were announced in the 2024 Autumn Budget.

However, 49 per cent of respondents reported that their confidence in pensions remained unchanged following the announcement.

Standard Life said the changes came against a backdrop of a ‘perfect storm’ for IHT, amid a frozen nil-rate band until April 2031 and rising asset values, with IHT receipts forecast to increase from £8.7bn in 2025/26 to £14.5bn in 2030/31.

For those who reported reduced pension confidence, passing on higher IHT burdens to beneficiaries was the top concern.

This was followed by uncertainty about tax implications after the IHT change and complexities around pensions more generally.

Forecasts indicate that, in 2027/28, around 213,000 estates will include unused pension pots, representing around one in three deaths in the UK.

However, more than three quarters (around 164,000) of these estates are still expected to pass on their pension funds free from IHT, according to projections from the Office for Budget Responsibility.

This is because most estates with unused pensions will be below the available IHT thresholds, or assets will pass on to a surviving spouse or civil partner.

Around 49,000 estates are expected to pay IHT for the first time or face a higher IHT bill as a result of the changes in 2027/28.

“There is a real risk that the upcoming IHT change could undermine confidence in pensions, with some people considering alternatives for their long-term savings,” said Standard Life tax and wealth planning specialist, Neil Jones.

“The research is a timely reminder for the new Prime Minister that even seemingly technical changes to pensions and savings rules can seep into the public consciousness and influence behaviour.

“Pensions are a long-term investment, often built over decades, so people need confidence that the rules supporting retirement saving will remain stable.

“Moving away from pensions could mean sacrificing a sustainable retirement income to avoid a tax people may never pay.”

Jones noted that pensions were central to retirement planning and one of the most tax-efficient ways to build retirement savings, and this will not change after the IHT reforms take effect in April 2027.

“They carry the triple benefit of pensions tax relief, long-term gains from compound interest, and employer contributions for eligible employees,” he continued.

“Those considering alternatives should carefully weigh up any long-term impact before making decisions.

“Those who think they might be impacted should speak to a qualified professional such as a financial adviser or estate planner.

“For this group, the benefits of pension saving may still outweigh any potential IHT implications, but an adviser will be able to support with each individual circumstance.”

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