Your pension fund will be key to building financial security beyond your playing career. However, an important change is coming that could affect how much of your wealth you can pass on to your family.
From 6 April 2027, most unused pension funds and some pension death benefits will be included in the value of your estate for Inheritance Tax (IHT) purposes.
Although the changes will not affect every estate, they do mean it is important to review your pension arrangements and wider financial plans.
Acting ahead of time could help you understand the potential implications for your family, allowing you to make informed decisions about your wealth.
Here are five key steps to take now.
1. Understand how the changes could affect you
Under the existing rules, most unused pension funds can be passed to your beneficiaries without forming part of your estate for IHT purposes.
Given the potential size of your pension fund, this can be highly beneficial.
But from April 2027, this tax advantage will disappear as these funds will be included in your estate when calculating IHT liability.
IHT is normally charged at 40% on the taxable value of an estate above the available tax-free thresholds. The standard nil-rate band is £325,000, and you could also make use of a residence nil-rate band of £175,000 if you leave your property to your children or grandchildren.
As you can appreciate, this change could be particularly relevant if you have built up a substantial pension while earning a high salary during your playing career.
2. Do not stop accruing pension savings
The core benefits of your pension remain unchanged. You still receive highly advantageous Income Tax relief on your contributions, at your marginal rate of tax, along with contributions from your employer if you are in their scheme.
Remember, your pension is designed to fund your retirement, not to mitigate IHT. So focusing too much on estate planning now could be a mistake, especially since retirement may be 30 or more years away.
Rather than panicking and changing your plans or stopping your pension contributions, we would suggest that you see the changes to pensions and IHT as a prompt to review your current arrangements.
Start by establishing what you have, where it is held, and what it is worth.
In this way, you will have a clear idea of the value of your funds, which can then help to inform your wider financial planning.
3. Consider other savings and investment options
The IHT exemption has often been used to argue for prioritising pensions over other tax-efficient savings and investment options, such as ISAs.
As a result, you may have focused on building a pension over accumulating significant wealth outside of it. From April 2027, your pension will no longer offer the same tax shelter, and it could be worth reviewing your wider strategy to maintain tax efficiency, while ensuring you can access funds when you need them.
For example, building an ISA pot alongside your pension fund could give you tax-free access to a potentially substantial fund in your 40s, well before the minimum pension age (which rises to 57 in 2028).
4. Review your wider estate planning options
Pension planning is only one part of managing your estate. The changes due in April 2027 also make it worth reviewing your wider estate planning arrangements.
For example, gifting assets during your lifetime (rather than in your will) could help you pass on wealth more tax-efficiently. Certain gifts are tax-free the moment you make them, while others fall outside your estate for IHT purposes if you survive for seven years, although the rules depend on the type of gift and your circumstances.
Trusts can also form part of an estate planning strategy, but they may involve tax charges, costs, and ongoing administrative responsibilities. Transferring assets into a trust is not automatically tax-efficient, so we recommend seeking specialist advice before proceeding.
You should also review your will and check that you have appropriate arrangements in place for your spouse or partner, children, and other dependants.
5. Ensure your pension is part of a wider financial plan
As a professional sportsperson, your financial plan needs to account for earnings that can be high but relatively short-lived.
You may have a limited window in which to build wealth, and your priorities could change considerably when you retire from professional sport. Your financial plan should therefore consider your pension, investments, estate planning, and potential future earnings as part of a wider strategy.
The upcoming IHT changes offer a useful opportunity to review whether your current arrangements still suit you.
A financial planner can work with you to help ensure your pension and estate planning decisions are coordinated.
Get in touch
If you would like to talk to us about how the changes to pensions and IHT could affect you, please get in touch.
Email enquiries@dbl-am.com or call 01625 529499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning or estate planning or trusts.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which may affect the level of pension benefits available. Past performance is not a reliable indicator of future performance.