Kirk Rice Blog

If you have an annuity – do this before April 2027Written on June 11, 2026 by Michael Powell

Michael Powell – Financial Planning Partner

Key Points

• From April 2027, most unused pension funds and certain death benefits are expected to fall within the scope of inheritance tax (IHT).
• The changes could affect how annuities and pension-based death benefits are viewed within wider retirement and estate planning.
• Strategies built around keeping pension wealth outside of an estate for inheritance tax purposes may become less effective under the new rules.
• The reforms may change the balance between retirement income planning, flexibility, and passing wealth on to beneficiaries.

For many retirees, annuities have traditionally been viewed as a straightforward way to turn pension savings into a secure, guaranteed income for life.

However, a major change coming into force on 6 April 2027 means it is more important than ever to review any existing annuity arrangements.

What’s changing?

The UK government has confirmed that most unused pension funds and certain death benefits will be included in your estate for inheritance tax (IHT) purposes from April 2027.

Until now, defined contribution pensions have typically been ignored allowing any remaining funds to be passed on efficiently to beneficiaries.

From 2027, that advantage largely disappears. Pension wealth – including funds not yet used or passed through certain product structures – could face IHT at up to 40% above allowances.

Beneficiaries may receive less than you expect.

Why this matters for annuities

While annuities convert pension savings into income, many were originally chosen instead of or to complement drawdown strategies partly because of tax planning considerations.

The new rules fundamentally change the context:

• Keeping money inside a pension solely for inheritance planning becomes less attractive
• Death benefits linked to pensions or annuity features could now fall within the IHT net
• Beneficiaries may face a combination of inheritance tax and income tax in some cases
• Crucially, this alters the balance between income, flexibility and legacy planning.

Time to reassess your strategy

This reform is a clear trigger to revisit retirement income decisions. Questions worth considering include:

• Are your annuity death benefit options still appropriate? Some features (such as value protection or guarantee periods) may now have different tax implications.
• Does your wider retirement plan still make sense? Many strategies were built on leaving pensions untouched for as long as possible—an approach that may no longer be optimal.
• Should you be drawing more income earlier? The new rules could favour using pension assets during your lifetime rather than preserving them purely for inheritance.

The bigger picture

The government’s intention is clear: to encourage pensions to be used for retirement income rather than as a tax-efficient wealth transfer vehicle.

For investors, that creates both risks and opportunities. While annuities continue to provide valuable certainty, their role within broader financial planning may need to evolve.

Take action early

With nearly a year until implementation, there’s still time to act. Reviewing your annuity and overall retirement strategy now could help you:

• Optimise income
• Reduce unnecessary tax exposure
• Align your plan with your long-term goals

As always, financial advice tailored to your circumstances is essential—but doing nothing may no longer be the safest option.

You can get in touch with us at info@kirkrice.co.uk or via our contact us page.

Visit our financial planning page for more financial advisory services.

Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.