The UK government’s plan to impose inheritance tax on undrawn pension pots has raised concerns among experts and industry leaders. Former pensions minister Baroness Altmann warns that the move will lead to “administrative chaos” and “huge delays for bereaved families.”
Altmann, who previously served as the director-general of the Saga Group, also cautions about extra costs for pension providers and potential long-term damage to pension schemes. She fears that the proposed changes may encourage people to withdraw their pensions quickly to avoid the new taxes, which could harm defined contribution schemes and lead to individuals exhausting their pensions prematurely.
Inheritance tax concerns intensify
Daniel Herring of the Centre for Policy Studies adds, “Inheritance Tax is complex and encourages the wrong behavior. Labour’s proposed changes could undermine investment and penalize those who want to pass their savings on to their children after death.”
Julian Jessop of the Institute of Economic Affairs echoes this sentiment: “Inheritance tax is a bad tax.
It damages economic growth by discouraging the creation of family wealth. It is also unfair because it means people who save and invest are taxed more at death than people who give their money away while still alive.
Influential wealth management firms, including Hargreaves Lansdown, AJ Bell, Interactive Investor, and Quilter, have also called for a U-turn. In a letter to the Chancellor, the CEOs warned that the proposed measures would “compound an already difficult situation” for grieving families and described the approach as “flawed and potentially damaging.
As an alternative, Baroness Altmann suggests a “flat-rate 20 percent inheritance tax on all unused pension funds on death, regardless of the age of death.”
Rachel Reeves, the Chancellor, has faced significant backlash for her budget proposals. Many experts and industry leaders have pressed for reconsidering the inheritance tax changes.
