The Pension Schemes Bill Lands – But Still No Clarity on IHT for Unused Pensions

The pensions industry has been waiting with considerable anticipation for the arrival of the new Pension Schemes Bill — not least because of the urgent need for clarity on the proposed Inheritance Tax (IHT) treatment of undrawn pension funds on death. The Bill finally landed on Thursday 5th June, and while expectations were high, many will have been disappointed to find that HM Treasury has neatly sidestepped the issue.

Despite months of industry consultation and growing frustration, the Bill offers no further detail on how IHT will apply to unused pensions from April 2027, nor how key implementation challenges will be resolved. The lack of guidance is both unhelpful and surprising, given the significance of the change and its implications for estate planning.

While this omission leaves a large gap, the Bill does signal some notable shifts in pension policy. Below, we highlight the key areas covered and what they could mean in practice.

1. Tackling the ‘Small Pot’ Problem

One of the headline items is a renewed drive to address the proliferation of small pension pots — those worth less than £1,000. With job mobility at an all-time high, it’s no wonder millions of savers have accumulated multiple, often forgotten, pensions. Current estimates suggest there are more than 13 million of these small pots in the UK.

The Bill proposes that these sub-£1,000 workplace pensions will be automatically consolidated into a single scheme, helping to reduce administrative costs, improve investment performance, and deliver better long-term value to savers. While this approach has clear merit, much-needed detail on how such automatic consolidation will work — and who will administer it — is still awaited.

2. Monitoring Scheme Performance

The performance of defined contribution (DC) pension schemes has also come under scrutiny. Under the Bill, new regulatory measures will be introduced to monitor scheme performance more rigorously. The intention is clear: pension schemes must prove they are delivering genuine value for money.

This is expected to herald a more transparent, data-driven approach to assessing how well schemes are serving members — with potential consequences for poorly performing schemes.

3. The Emergence of Pension ‘Superfunds’

Perhaps the most ambitious proposal is the formal introduction of ‘pension superfunds’ — mega-schemes intended to pool the assets of multiple employers into funds of at least £25 billion.

With an estimated £1.2 trillion currently held in UK DB pension assets, the aim is to create scale, reduce costs, and unlock opportunities for broader, more impactful investment strategies. If implemented effectively, superfunds could significantly reshape the pension landscape.

4. Default Benefit Solutions for All

To support the growing emphasis on pension freedoms, the Pension Schemes Bill will require every pension scheme to offer a default retirement benefit option — one that is both suitable for the member base and consistent with modern drawdown freedoms.

This marks a step forward for consumer protection and accessibility, especially for those unaware of their choices at retirement. Many schemes still don’t offer drawdown, leading to unnecessary transfers and poor decision-making. This new requirement could streamline and simplify that process for many.

What Next?

While the Bill outlines some positive and overdue changes, its silence on IHT for undrawn pensions is a significant omission. This remains one of the most consequential issues facing pension savers and advisers alike.

At WBR, we will continue to monitor developments closely, provide clear technical insight, and ensure our clients and their advisers are fully informed as the picture evolves. For SMEs, SSAS clients, and professionals advising them, the practical implications of these changes will take time to unfold — but the conversation has clearly begun.

Stay tuned for further updates as the Pension Schemes Bill progresses and additional guidance is (hopefully) released.

The information in this article is accurate at the date of publication – 10th June 2025