New Pension Rules: Why Executors Face Greater Risk, Responsibility and Complexity

As many people know from the headlines, from the 6th of April 2027, most unused pension funds and pension death benefits will come within the scope of Inheritance Tax. What isn’t covered by the headlines is that is not simply a change to the overall Inheritance Tax bill. These changes can and will fundamentally change what is expected of the people responsible for administering the estate; a role that frequently falls to bereaved family members appointed in a Will.  

Being named as an executor or being a personal representative is often regarded as an honour, or as a role that family members accept without fully appreciating what it may involve. 

For a straightforward estate, a family member may feel perfectly capable of dealing with the probate application, collecting the assets, paying the debts and distributing the estate.  

However, the rules coming into effect for deaths on or after the 6th of April 2027 make that decision considerably more complicated where the deceased had pension savings. Given that approximately 75% of adults in the UK have at least one pension pot, these changes are likely to affect a significant number of families.  

The House of Lords Economic Affairs Committee has now examined the practical consequences of the changes. Its findings make uncomfortable reading for anyone who is considering administering an estate without professional assistance.  

Why are pensions suddenly a problem for executors? 

Under the new rules, most unused pension funds and pension death benefits will be brought into the Inheritance Tax calculation.  

The important point for personal representatives is that the responsibility for reporting and paying the Inheritance Tax will generally sit with them, with potential associated financial liabilities and penalties.  

That creates a significant practical problem, as a pension does not necessarily behave like an ordinary estate asset.  

Often, a pension scheme may have to make decisions about who is entitled to benefits following the member’s death; most pension schemes in the UK are written into discretionary trust, which gives the pension scheme ‘discretion’ over who they pay out to on death. Information will therefore have to be obtained from pension scheme administrators. The personal representatives may need to establish the administrator’s identity before receiving the required information—and, crucially, these processes will likely need to take place before a Grant of Probate can even be provided.  

The Government’s own guidance recognises that pension scheme administrators will need to provide information to personal representatives or prospective personal representatives before the grant of probate or letters of administration is issued; this is significant additional administrative burden before executors or personal representatives can even begin the administration of the estate.  

The Lords Committee described the resulting position as particularly challenging , and were critical of the changes. 

It concluded that the ability of a personal representative to meet the Inheritance Tax deadlines (after which, significant interest is added to the IHT bill) will depend, to a significant extent, on the pension scheme administrator. This may mean that that personal representatives could find themselves exposed to interest charges through no fault of their own. 

This goes far beyond the traditional tasks associated with estate administration, such as collecting assets or selling investments. Instead, lay executors are likely to be placing the consequences of these changes in the hands of a pension administrators’ response time.  

The six-month problem  

Inheritance Tax is generally due by the end of the sixth month following the deceased’s death, with late payment interest applying thereafter.  

Leading on from the stages set out above, the problem is that the personal representative does not necessarily control the timetable for obtaining the information needed to calculate the tax.  

The Lords Committee went so far as to conclude that it was not realistic to expect personal representatives to meet the existing six-month deadline for paying Inheritance Tax on pension assets.  

They illustrate the fundamental difficulty facing a family member who has agreed to act as an executor: you can be responsible and liable for getting something done even though you may not have control over the information or assets needed to do it.  

The Committee specifically expressed concern about personal representatives being responsible for paying tax on an asset that they do not control or have immediate access to. 

It also warned that the Government’s proposals did not adequately address the personal liability faced by personal representatives.  

Personal representatives have important legal responsibilities, and getting the administration of an estate wrong can expose an executor to personal liability.  

The new pension rules therefore introduce a particularly uncomfortable combination:  

The executor may need information from a third party; 

The third party may take time to provide it; 

The executor may have a statutory tax deadline;  

The tax may relate to an asset which the executor does not control; and  

The executor remains responsible for administering the estate correctly. 

For those with no previous experience of estate administration, it represents a significant personal responsibility at an already difficult time. 

“I can deal with probate myself” may no longer be the right answer  

Traditionally, families have often approached estate administration based on a simple question: Can we save legal fees by doing the probate ourselves?  

Given the extensive changes to pensions due in April 2027, the better question is: Do we understand the responsibilities and risks we are taking on by acting as personal representatives?  

One witness told the House of Lords Committee that the scope for a layperson to administer an estate is “hugely diminished” by the changes.  

The Committee itself concluded that personal representatives will need access to good professional advice where an estate includes one or more pension schemes, whether or not Inheritance Tax is ultimately payable on those pensions.  

The pension information, valuations, beneficiary position and reporting requirements may all need to be considered before the personal representatives can be confident that they have administered the estate correctly.  

It would be easy to assume that these changes only matter to very wealthy families, but they absolutely do not.  

The administrative difficulties can arise simply because the deceased had unused pension savings. Given how common pensions are, this is a situation that many ordinary families are likely to encounter.  

A family may have an estate consisting of a house, some savings and one or more pension arrangements – the surviving spouse or adult children may assume that dealing with the estate will therefore be relatively straightforward.  

Dealing with an estate can be demanding, particularly at a time of grief, and many families need trusted professional guidance to help them through the process.  

What next?  

HMRC is still developing guidance and supporting material, while information-sharing arrangements between personal representatives and pension scheme administrators are being implemented.  

The Lords Committee was concerned about the timetable and about the readiness of the pensions industry. It also recorded evidence that the additional risks could make the role of personal representative less attractive even to professionals.  

The proposed pension changes does not simply mean that executors need to complete an extra form.  

The real issue is that estate administration is evolving into a far more interconnected process, requiring executors to navigate the complexities of pensions, probate and Inheritance Tax simultaneously.  

What should families do? 

The changes do not mean that every family must appoint a solicitor to administer an estate.  

There will still be straightforward estates where an executor is comfortable dealing with the administration themselves.  

But where there are pensions, potential Inheritance Tax liabilities or uncertainty about the deceased’s assets, it is worth considering professional assistance at an early stage.  

RLK Solicitors can help to:  

• identify the assets and liabilities of the estate; 
• establish which pension arrangements need to be investigated; 
• communicate with pension scheme administrators; 
• assess the Inheritance Tax position; 
• deal with the probate application; 
• coordinate the information needed for the estate accounts and tax reporting; 
• advise on the payment of Inheritance Tax; and 
• administer and distribute the estate once the tax and other liabilities have been dealt with. 

Most importantly, professional estate administration allows the family to avoid having to become experts in probate, pensions and Inheritance Tax at precisely the time when they are least likely to want that responsibility.  

The House of Lords Committee’s report is striking because the concerns are not coming simply from lawyers trying to encourage people to use professional advisers.  

It also concluded that, without clear guidance and support, lay personal representatives will struggle to understand what their responsibilities are in relation to the deceased’s pension schemes after April 2027.  

For anyone appointed as an executor, that should prompt a rethink.  

Being an executor is not simply a matter of obtaining the Grant of Probate and dividing up the estate.  

If you have been appointed as an executor, you do not have to administer the estate alone.  

Obtaining advice at the outset can help you understand your responsibilities, identify potential tax liabilities, and reduce the risk of mistakes.  

For many families, the question may no longer be whether they can administer an estate themselves, but whether they should take on that responsibility when professional help is available.