Former Pensions Minister Baroness Ros Altmann has sharply criticised the government’s plan to end inheritance tax (IHT) exemptions on unused pension pots, calling it a “disaster” for savers and a “blow to retirement planning”. The policy, announced in the 2024 Autumn Budget, is set to take effect in April 2027, and aims to raise up to £1.5 billion annually by taxing inherited pension funds that are currently exempt. See Alternative Credit Investor and Financial Times.
What’s Changing?
Under the new rules, any unused pension funds and death benefits from pensions will be included in a person’s estate for IHT purposes. Currently, pensions are generally exempt from IHT, allowing them to pass tax-free to beneficiaries. This change means that pensions will be treated like other assets—subject to IHT at 40% above the £325,000 threshold—potentially leading to double taxation when combined with income tax on the pension pot itself. Financial Times
Altmann’s Concerns
Altmann argues that this move undermines the government’s own pension reforms, which were designed to encourage saving for retirement. She warns that the policy could:
Increase Costs and Complexity: The new rules will require pension providers to calculate IHT liabilities, potentially delaying payouts and adding administrative burdens.
Penalise Savers: Individuals who have diligently saved for retirement could see their beneficiaries taxed heavily, reducing the intended legacy.
Discourage Saving: The policy may deter people from saving into pensions if they fear their heirs will face significant tax liabilities.
Industry Backlash
The proposal has faced criticism from wealth managers and financial advisers. Michael Summersgill of AJ Bell described the plan as “the most complex and costly way of raising tax from unused pensions on death,” highlighting concerns over double taxation and the potential for delays in distributing funds to beneficiaries. Financial Times
Potential Revenue and Criticisms
The government estimates that taxing inherited pensions could raise £1.5 billion annually by 2030. However, critics argue that this approach is unfair and could have unintended consequences, such as discouraging pension saving and creating administrative challenges.
Conclusion
As the implementation date approaches, it’s crucial for savers to review their retirement and estate planning strategies. Seeking advice from financial professionals can help navigate the changing landscape and ensure that your plans align with the new tax rules. Global Wealth Management