Compliace Matters week ending 9th January 2026

Here is a digest of regulatory issues that have come into my inbox this week.

• IHT planning following the changes to pensions

• Pension value to be put under the spotlight

• Tackling non‑financial misconduct in financial services

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  Deepening Outcomes Under the Consumer Duty

• FCA removes contactless payments limit

IHT planning following the changes to pensions

This is a summary of an article that appeared in Citywire entitled “Gifting, life insurance and trusts: how planners are cutting IHT bills”.  As we know, in the 2024 Autumn Budget, Rachel Reeves announced that pensions will be subject to IHT from 2027.  A statement that has refocused the way advisers consider pensions as part of the way clients fund retirement.

The use of lifetime assets: up until the announcement, a common approach was to use pensions as an estate planning vehicle.  Funding retirement using lifetime assets such as GIAs and ISAs for income ahead of pensions had become the norm.  Pensions were part of the estate planning discussion and left until last.  Creativity is now required from advisers to utilise a range of options to help clients reduce the size of their estate.  Here are some of the options.

Life assurance: an option for clients under 75 might be to recommend whole of life assurance with a sum assured equal to the IHT liability, then withdraw additional pension income to fund the policy.  The beneficiaries can use the sum assured to pay the IHT on the estate when they die.  Any whole of life plan must be written in Trust to remove the sum assured from the client’s estate.  This way clients are effectively paying their own IHT bill in advance, but at discount, because the premiums paid will usually be less than the sum assured paid out.

Gifting: gifting has been a way of reducing IHT for those clients who can afford to relinquish control of the money being gifted. 

Potentially Exempt Transfers (PETs) have been used for decades for those clients who are expected to survive the seven-year rule, although we can recommend a Gift Inter Vivos policy to cover the IHT liability on death before the seven years.

Regular gifts can be treated as ‘gifts out of income’ making them immediately outside an estate.  Gifting out of excess income is a way of reducing an estate subject to IHT.  The issue for advisers is that with the client, and possibly their accountant, you need to maintain meticulous records to prove it was genuinely excess income and will pass any HMRC test.’  Clearly the gift must be regular, but also affordable and not adversely impact the client’s lifestyle.

Purchasing an annuity: purchasing an annuity with part of a larger pension pot has been used as a way of providing a guaranteed income for essential spending, leaving the remainder of the pension fund to be drawn down for discretionary or lifestyle spending.  To be an effective IHT planning vehicle, the income produced by the annuity must be spent or gifted.  The annuity ceases with the death of the client, but the original purchase price has been removed from the estate at outset.

Discounted Gift Trusts: Discounted Gift Trusts could help a client reduce the size of their estate, subject to their age and health.  The client invests a lump sum into a Trust, the client retains the right to take fixed payments for life from the Trust.  An insurer then ‘discounts’ the Trust’s value based on the client’s life expectancy and income needs.  This amount is removed from the estate for IHT purposes, while allowing the client to keep taking payments.  The client then gifts the remaining Trust to their beneficiaries when they die, and this becomes exempt from IHT after seven years, hence the age caveat above.

Deed of Variation: Sometimes called a Deed of Family Variation, it allows beneficiaries redirect their inheritance to someone else.  The Ded of Variation is treated as though the Settlor of the Will made that decision themselves.  This must be done within two years of the individual’s death and requires the agreement of all beneficiaries under the Will.  A Deed of Variation could be suitable where a beneficiary inherits a sum of money they do not need and they want to pass it onto, say, their children instead to avoid it being taxed for IHT twice.

An adviser may also consider using a Deed of Variation to move the money into a Trust, which would remove it from anyone’s estate for IHT purposes and would allow both the original beneficiary and future generations to access it if they need it.  This route would require further involvement from the adviser and the client’s accountant.  Under current rules, there would be a 6% tax charge due on the Trust every 10 years, but, for example, if the Trust is in place for three generations, the tax charge is 18%, compared to 40% if the money was subject to IHT on the Settlor’s death.

Spend the money or gift it to charity: this is the most simplistic solution.  Encourage clients to spend and enjoy their money.  Integral to all decumulation planning is a cashflow analysis.  This gives the client the confidence to spend their money with the knowledge that their assets will outlast them.  If your client really does not want to pay IHT, one way to reduce the tax bill is to make gifts to charity either in their lifetime or in their will.  These are fully exempt from IHT and will reduce the size of the estate.

Pension value to be put under the spotlight

In a press release on 8^th January, the FCA in conjunction with the Department for Work and Pensions (DWP) and The Pensions Regulator (TPR) have stated that pension schemes will need to publish clear data on their performance, costs and quality of service.  If a pension offers poor value, firms and trustees must then fix it by moving savers to better schemes or driving improvements.

The proposals aim to make it clearer how pensions perform, what they cost and the quality of service.  So that people can get good value, and so that poor performing schemes are pushed to improve. 

These proposals are aimed at workplace pensions and can be read in Consultation Paper CP26-1, however, we should look to apply the same principles to our clients’ individual pensions as part of our client annual reviews.

Tackling non‑financial misconduct in financial services

In December 2025, the FCA published Policy Statement PS25/23 covering non-financial misconduct (NFM) in financial services.  These rules will come into force on 1 September 2026.

Non-financial misconduct (NFM) in the workplace refers to serious behaviour like bullying, harassment, violence, or discrimination that does not directly involve money but undermines a firm's culture, ethics, and reputation, impacting staff and trust in the financial sector.  The FCA, defines NFM as serious misconduct that creates a hostile environment, violates dignity, or involves violence, extending regulatory scrutiny to actions that affect a firm's integrity, even if outside core financial transactions.

The FCA is proceeding with a revised version of the COCON and FIT guidance and has made changes to address:

• new examples and flow diagrams to help apply COCON consistently;

• clearer alignment with employment law;

• clarifying that managers’ accountability is relative to their knowledge and authority;

• withdrawing or amending examples and factors that risked imposing disproportionate burdens; and

• clarifying that firms are not expected to investigate trivial or implausible allegations or breach privacy law when assessing fitness and propriety.

Deepening Outcomes Under the Consumer Duty

The Consumer Duty remains the FCA’s anchor priority for 2026.  Having established this regime, the FCA’s supervisory emphasis is shifting away from conceptual compliance to demonstrating real consumer outcomes.  Firms will face intensified scrutiny around the regulator’s four stated priorities for this year:

• Review of products and services outcome: how firms are designing products and services to meet client needs, including those with characteristics of vulnerability.

• Review of firms’ approaches to outcomes monitoring: how firms are responding to the outcomes monitoring requirements. 

• Review of firms’ customer journey design: looking at the design and delivery of firms’ client journeys to ensure clients’ needs are met, with a particular focus on how firms apply friction throughout the journey.

• Review of the consumer understanding outcome: how firms’ communications are helping consumers make informed decisions. 

This is more than a tick-box exercise – the FCA wants evidence of impact, not intent.  The Consumer Duty continues to shape the regulator’s thematic reviews and expectations across retail and consumer finance sectors.

FCA removes contactless payments limit

Reported by the law firm Womble Bond Dickinson, the FCA has gone ahead with its plans to remove the contactless limit requirement, so that in future providers and consumers will be able to set higher limits or turn off contactless limits altogether, with the result that they will be able to make payments of any amount with their contactless card without having to use their PIN.

The FCA claims this will incentivise firms to have even stronger anti-fraud controls in place while giving customers flexibility without removing the fundamental protection of reimbursement in case of card theft or fraud.

The FCA’s Handbook Notice confirming the changes says that firms will be able to process payments without asking for authentication where they identify the risk of the transactions to be low.  The FCA says that the 19 industry respondents to its proposals were generally supportive of the change, though several thought it important to keep a common contactless limit on single transactions.  84% of public respondents did not want the change (even more than the 78% which had opposed it when previously asked).  Everyone was concerned about the increased risks of financial crime.  In going ahead with the proposals, the FCA says that most objections centred round the assumption that PSPs would remove or increase the limits and that as a result fraud would increase.  However, given it does not think firms will actually make any changes, it thinks this minimises the risk.

The changes take effect from March 2026.  Firms do not have to use the new flexibilities, but if they do, they must communicate clearly with their customers on what they are doing.  Unsurprisingly, given no-one asked for this change, the FCA thinks most providers will keep their existing limits for the foreseeable future