Later life lending platform Air has urged advisers and the regulator to focus on the Consumer Duty challenge posed by the inclusion of unused pension funds in estates.
From April 2027, most unused pension funds will be part of an estate for inheritance tax (IHT) purposes, ending the current IHT-free status of most defined contribution pension funds.
Government figures have shown that in the 2027/28 tax year, around 10,500 estates will become liable for IHT as a direct result of the new changes, with a further 38,500 estates paying higher IHT bills. Over the first three years of operation, the new rule is expected to generate an additional £3.44bn in IHT coffers.
Air has warned that the regulator and advisers need to “strengthen their focus on tax efficiency” as part of delivering good customer outcomes under the Financial Conduct Authority’s Consumer Duty regulations.
The later life lending platform highlighted concerns that wealth advisers and IFAs could focus purely on pensions and not consider the role that property wealth can play in retirement planning.
Air stated that over-55s own an estimated £3.7trn in property wealth – around two-thirds of the UK’s property wealth – which the group said should play a “major role” in funding later life and legacy planning.
“Tax efficiency should be at the heart of financial advice and is particularly important as part of decisions around retirement income and estate planning given the potential impact on the outcomes achieved by all the parties involved,” commented CEO of Key Advice & Air, Will Hale.
“The inclusion of unused pensions in estates from the 2027/28 tax year is a major change which creates more complexity on how to prioritise the use of assets in retirement and the announcement that the plan is going ahead will mean revisiting retirement plans for many clients.
“For advisers and the regulator, it creates a Consumer Duty challenge making it even more important that later life customers are able to access holistic advice that includes consideration of all options including later life lending. The concern is that advisers will stick purely to their silos and not look at other options or engage with specialist referral partners.”
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