With one year to go until pensions come into scope for inheritance tax, more than half of employees with a workplace defined contribution pension are not aware of the change, new research by Barnett Waddingham suggests, as a separate study found that a similar proportion find IHT rules confusing. The consultancy is now calling on employers and providers to engage and offer education on the topic.

Left over assets in DC pension pots will be included in the estate of a deceased person from April next year, under rules announced by the chancellor last autumn.

With one year to go until the changes are in force, consultancy Barnett Waddingham conducted research among 2,000 UK employees with a DC pension finding that 62% are unaware that unused savings will be included in their estate from next April. Despite this, a net 63% were concerned their pension savings would increase the risk of IHT being due.

The findings highlight the vital role that employers and workplace pension schemes can play in supporting employees with greater awareness and clearer guidance around their estate planning, said Barnett Waddingham. 

Mark Futcher, head of DC pPensions at Barnett Waddingham, warned the risk is not just that people do not know about the incoming IHT change, but that people who do know make decisions that can lead to poor outcomes because of a lack of guidance and support. 

“It’s clear that the upcoming changes are creating a split in behaviour. While our findings show many remain in the dark about what’s coming, recent headlines suggest those who are aware are hitting the panic button - pulling out lump sums to avoid future tax bills. This highlights the risk of making long-term financial decisions in the heat of the moment. Acting too quickly could store up problems for later, from reducing retirement income to creating additional tax liabilities,” said Futcher.

He said employers and pension providers have a critical role to play and “should be acting as a steady hand on the tiller when uncertainty like this arises” by offering targeted education, for example. 

A large proportion (70%) of those surveyed by Barnett Waddingham said they were concerned that their family will receive less than they intend to leave them, and 67% were worried about the administrative burden placed on their family when dealing with their pension. Another three in five (58%) worry about not knowing how much is in their pensions, or where they are, including 37% of those with just three to four years until retirement. 

Understanding of both pensions and IHT is poor among the general population; just 6% describe their understanding of IHT rules as very clear, separate research by Canada Life has found, with only 15% feeling confident about how much they can gift each year without it being counted for IHT purposes.

  

The majority (74%) have heard of gifting allowances but do not know the details, whilst one in10 incorrectly think all gifts sit outside of IHT calculations, according to the survey. Just a quarter (26%) of UK adults could correctly identify the annual tax-free gift allowance as £3,000, while more than half (57%) were either not aware of the seven-year rule or did not know how it works.

  

“With rising property values, IHT thresholds frozen until 2031 and pensions set to be included in inheritance tax calculations from April 2027, an increasing number of families who never expected to pay inheritance tax may now need to review their financial planning strategies,” said John Chew, tax, trusts and estate planning expert at Canada Life.

 

He warned that confusion around inheritance tax has real consequences as families risk missing valuable reliefs and exemptions or face additional stress at a time of loss. 

The majority of estates do not currently pay IHT – in 2022-23, IHT was paid on one of 20 estates, up 0.23 percentage points since 2021-22. However, the inclusion of pensions is expected to pull more families into the IHT net, along with an impending wealth transfer from the baby boomer generation, who benefitted from rising house prices, and frozen thresholds. From April 2025 to February 2026, IHT receipts were £7.7bn, up £100m from the same period last year, according to AJ Bell.