The government has announced changes that will affect how pension lump sums are treated for Inheritance Tax (IHT) purposes. These changes are expected to apply from 6 April 2027. 

As the Nationwide Pension Fund (the Fund) is a defined benefit scheme, when a member dies an annual pension is usually payable to a dependant for their lifetime. This type of pension is outside the scope of these changes and will continue to be exempt from IHT.

There are some limited circumstances where a lump sum may be payable from the Fund on a member’s death. For example, where:

• A pensioner member dies within 5 years of retirement.
• A deferred member dies before retirement and doesn’t leave a beneficiary who is eligible for a dependant’s pension.
• A deferred member previously paid additional contributions and an investment-linked AVC fund is payable.

In the above circumstances, the personal representatives administering the deceased’s estate will be responsible for assessing if the lump sum payment will be subject to IHT. 

Given the current tax free IHT allowances that are available, we only expect a small number of members to be affected by the IHT change. 

You do not need to take any action. 

The Trustee knows this change will potentially introduce an additional element of complexity at what would already be a difficult and stressful time.

We’re currently awaiting more detail from the government and HM Revenue & Customs and will work with Gallagher, the Fund’s Administrator, to ensure robust processes are in place to support personal representatives when the new requirements take effect.

You can see the current Inheritance Tax thresholds, rules and allowances at gov.uk/inheritance-tax.