By Katarina Safai – Senior Consultant, Corporate Services, Kelmer Group London
The Pension Schemes Act 2026 (Royal Assent 𝟮𝟵 𝗔𝗽𝗿𝗶𝗹 𝟮𝟬𝟮𝟲) reforms how pension pots are managed and grown:
- 𝗦𝗺𝗮𝗹𝗹 𝗽𝗼𝘁𝘀 𝗰𝗼𝗻𝘀𝗼𝗹𝗶𝗱𝗮𝘁𝗶𝗼𝗻 – multiple small pots built up from job changes will be automatically merged, giving savers one clearer pot instead of several scattered ones.
- 𝗩𝗮𝗹𝘂𝗲 𝗳𝗼𝗿 𝗠𝗼𝗻𝗲𝘆 (𝗩𝗙𝗠) 𝗳𝗿𝗮𝗺𝗲𝘄𝗼𝗿𝗸 – a standardised test to flag underperforming schemes on cost and returns, pushing weaker schemes to improve or exit the market.
- 𝗚𝘂𝗶𝗱𝗲𝗱 𝗿𝗲𝘁𝗶𝗿𝗲𝗺𝗲𝗻𝘁 / 𝗱𝗲𝗰𝘂𝗺𝘂𝗹𝗮𝘁𝗶𝗼𝗻 𝗱𝗲𝗳𝗮𝘂𝗹𝘁𝘀 – schemes will have to offer a clear default option for turning savings into a retirement income, rather than leaving people to navigate drawdown alone.
- “𝗠𝗲𝗴𝗮𝗳𝘂𝗻𝗱𝘀” – multi-employer DC funds of £𝟮𝟱𝗯𝗻+ to cut costs and allow investment in a wider range of assets, including UK infrastructure and businesses.
- 𝗗𝗕 𝘀𝘂𝗿𝗽𝗹𝘂𝘀 𝗿𝗲𝗹𝗲𝗮𝘀𝗲 – defined benefit schemes get more flexibility to release surplus to employers/members (an estimated £𝟭𝟲𝟬𝗯𝗻 potentially unlocked).
- 𝗟𝗼𝗰𝗮𝗹 𝗚𝗼𝘃𝗲𝗿𝗻𝗺𝗲𝗻𝘁 𝗣𝗲𝗻𝘀𝗶𝗼𝗻 𝗦𝗰𝗵𝗲𝗺𝗲 𝗽𝗼𝗼𝗹𝗶𝗻𝗴 – LGPS assets consolidated under FCA-regulated pool managers.
Government estimates an average worker could be around £𝟮𝟵,𝟬𝟬𝟬 better off in retirement from lower costs and better returns.
How this interacts with the IHT change
From 𝟲 𝗔𝗽𝗿𝗶𝗹 𝟮𝟬𝟮𝟳, most unused pension pots and death benefits become part of your taxable estate for IHT, at up to 𝟰𝟬% above the nil-rate band (frozen at £𝟯𝟮𝟱,𝟬𝟬𝟬 until 5 April 2031). This is a separate change from the pot-management reforms above but obviously affects what’s left in the pot at death.
Impact on people who left the UK or are foreign tax residents with UK pensions
This is the part where the rules bite even if you’ve emigrated:
- UK pensions stay UK-sited assets regardless of where you live. The 2027 IHT charge attaches to where the asset sits, not your personal residency – so a UK-registered pension (SIPP, workplace scheme, etc.) held by someone who’s lived abroad for years is still in scope.
- The domicile-based system was replaced by residence from 𝟲 𝗔𝗽𝗿𝗶𝗹 𝟮𝟬𝟮𝟱. The new test is the 𝗟𝗼𝗻𝗴-𝗧𝗲𝗿𝗺 𝗥𝗲𝘀𝗶𝗱𝗲𝗻𝗰𝗲 (𝗟𝗧𝗥) 𝗿𝘂𝗹𝗲: broadly, you’re liable to UK IHT on worldwide assets if you’ve been UK tax resident in 𝟭𝟬 𝗼𝗳 𝘁𝗵𝗲 𝗹𝗮𝘀𝘁 𝟮𝟬 tax years; you generally drop out of worldwide scope once you’ve been non-resident for a similar stretch.
- But losing LTR status doesn’t help with a UK pension – LTR only governs whether your non-UK assets are pulled into UK IHT. Your UK pension is a UK asset either way, so it’s taxed regardless of your LTR/residence status.
- A “tail” provision can keep some recent leavers liable on worldwide assets for a period after they become non-resident, even before LTR status changes – the sources are fairly thin on exact mechanics here, so this needs a specialist check for anyone who left recently.
- 𝗤𝗥𝗢𝗣𝗦 (transfers to overseas pension schemes): the 𝟮𝟱% Overseas Transfer Charge (in place since late 2024) already discourages most transfers out. It’s mainly waived only when you’re tax-resident in the same country/economic area as the receiving scheme (this has practically benefited people moving to, e.g., Malta or Gibraltar-based schemes matching their residence).
- 𝗤𝗡𝗨𝗣𝗦 (Qualifying Non-UK Pension Schemes) – previously a route some used to hold pension-like assets outside UK IHT scope – are also expected to be pulled into the same 2027 regime, closing off that route too.
- Double tax treaties may offer some relief depending on the country involved, but this varies treaty-by-treaty and isn’t a blanket protection – worth checking against the specific country’s UK tax treaty.
the “safe by being non-resident” assumption that used to apply doesn’t carry over to UK pensions after 𝗔𝗽𝗿𝗶𝗹 𝟮𝟬𝟮𝟳. People who’ve left the UK but kept a UK pension pot should get cross-border tax advice on options like managed drawdown before 2027, or reviewing whether a compliant local structure makes more sense. This is one of the more complex corners of the reform, so a specialist familiar with both UK IHT and the destination country’s rules is worth involving rather than relying on general guidance (including this one).