Consumer Duty and Pension IHT — What Financial Advisers Are Required to Do
Peter Rose APFS · Chartered Financial Planner · Aetas Wealth · April 2026 · 10 min read
Finance Act 2026 has created a new and substantive question for every financial adviser with clients holding defined contribution pension funds: does Consumer Duty create an obligation to proactively raise the pension IHT issue with affected clients? The answer, in most cases, is yes — and the professional and regulatory consequences of not doing so deserve careful consideration.
What Consumer Duty requires
The FCA’s Consumer Duty (PS22/9), which came into force on 31 July 2023, establishes a higher standard of consumer protection. At its core, the Duty requires firms and advisers to “act to deliver good outcomes for retail customers” across four outcome areas: products and services, price and value, consumer understanding, and consumer support.
The outcome most directly relevant to the pension IHT issue is consumer understanding: the requirement that customers receive the information they need, in a way they can understand, to make informed decisions. For a client with a £400,000 SIPP who does not know that their pension will be subject to a 67% combined charge from April 2027, the consumer understanding outcome has not been met — regardless of whether the adviser was asked about it.
Which clients are “materially affected”?
Not every client with a pension requires the same urgency of attention. The materiality threshold — the point at which the adviser’s Consumer Duty obligation to act proactively becomes clear — depends on the interplay of fund value, client age, family structure, and estate composition.
In practice, the following client profiles represent the highest-priority cases:
- Clients aged 75 or over with unused DC funds above £100,000. Both the IHT and income tax charges apply simultaneously, creating the maximum exposure. Time to act is most constrained for this group.
- Clients aged 55–74 with unused DC funds above £250,000 and non-spousal beneficiaries. The income tax charge does not apply for under-75 deaths, but the IHT charge alone at 40% represents a material loss for beneficiaries.
- Clients with estates already at or above the nil-rate band threshold where no band is available to offset the pension IHT charge.
- Clients who have previously expressed a wish to pass their pension to their children — this is a stated planning objective that the new rules directly frustrate. The adviser has a clear basis to raise the issue.
The suitability obligation
Consumer Duty does not override the suitability requirement. The obligation to raise the pension IHT issue is not the same as the obligation to recommend any particular solution. The adviser’s role is to ensure the client is informed — and then to make a suitability assessment before making any specific recommendation.
For the Flexible Pension Annuity specifically, suitability considerations include the client’s health and longevity expectations, their existing income arrangements, their attitude to the two-year qualifying period, the size of the fund relative to planning costs, and whether the client has other estate planning structures already in place. A recommendation to transfer to the FPA must be supported by a full suitability assessment in the normal way.
What “raising the issue” looks like in practice
Consumer Duty does not require advisers to have a solution ready before raising the issue. It requires advisers to ensure clients have the information they need. In practice, this means:
- Including a pension IHT review as a standing item on the annual review agenda for all clients with DC pension funds above a defined threshold
- Sending a proactive communication to affected clients explaining the Finance Act 2026 changes in plain terms, before April 2027
- Running the client’s numbers through the calculator and presenting the before-and-after comparison as part of a review meeting
- Documenting the conversation and the client’s response — whether they wish to explore planning options or make an informed decision not to act
The executor liability dimension
Consumer Duty obligations extend beyond the direct client relationship. Where the adviser knows that a client’s family members are likely to act as executors of the estate, there is a secondary consideration: executors are personally liable for IHT on the pension fund within six months of the end of the month of death. Where the estate does not have sufficient liquid assets to pay the IHT bill, the executor faces personal financial exposure.
For clients who have named family members as executors — and whose pension represents the largest single asset in the estate — the adviser has a basis to raise the executor liability issue as part of the planning conversation. This is not a separate compliance obligation, but it is a dimension of the good outcome that the Consumer Duty framework envisages.
Record-keeping requirements
The FCA’s Consumer Duty monitoring obligations require firms to have evidence that they are delivering good outcomes. For the pension IHT issue specifically, advisers should maintain records that demonstrate:
- That affected clients were identified through a systematic review process
- That the Finance Act 2026 changes were explained to each affected client in a timely manner
- That planning options were presented and their suitability discussed
- What the client decided and why
- When the next review is scheduled
These records do not need to be complex. A file note recording the conversation, the options discussed, and the client’s decision is sufficient for most purposes. The key is that the record exists and is contemporaneous.
The timeline pressure on adviser action
The FCA’s monitoring of Consumer Duty outcomes is ongoing. Complaints relating to pension IHT losses after April 2027 — where the client was not informed of the changes before the legislation took effect — are a foreseeable category of future complaint. Advisers who have not started pension IHT planning conversations with affected clients have a narrowing window to do so before the April 2027 deadline.
For clients aged 75 or over where the FPA is suitable, the urgency is compounded by the two-year BPR qualifying period. Acting in April 2026 provides the most favourable planning window. Acting after April 2027 leaves a gap between the legislation taking effect and the BPR qualification being achieved.
Resources for the adviser conversation
The Aetas Wealth adviser dashboard provides a live calculator that produces a personalised IHT and income tax analysis for any client scenario. The FPA Adviser Compliance Pack — available to download from the dashboard — covers the Finance Act 2026 legislation, the BPR legal basis confirmed by Threesixty Services, and the executor liability risk in a format suitable for the adviser’s compliance file. Peter Rose is available for a complimentary pipeline review call to discuss specific client cases and confirm suitability.