Reeves' inheritance tax raid puts millions at risk of poverty in later life, warns ROS ALTMANN
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The bombshell Budget inheritance tax announcement is a potential disaster for pensions. It will mean less money going in, more early withdrawals, lower pension fund investment in long-. term higher-return assets and more pensioners reliant on state benefits.
This is horribly reminiscent of Gordon Brown’s 1997 dividend tax credit removal from UK pension funds which, as with this Budget, saw little industry opposition at the time. It took several years to recognise this fatal blow for traditional final-salary-type defined benefit (DB) pensions.
Scrapping inheritance tax (IHT) exemption for unspent pensions could be equally damaging to defined contribution (DC) schemes that replaced once-thriving private sector DB arrangements, undoing the brilliant incentives of George Osborne’s 2015 freedoms.
Tax grab: Chancellor Rachel Reeves said in the Budget that from April 2027, pensions would no longer be exempt from inheritance tax. These removed requirements for DC pensions to buy annuities (where insurers can pocket pension funds of those dying, leaving nothing for heirs) or buy expensive drawdown funds with a 55 per cent death tax.
After 2015, people could take control of their pensions, feeling safe contributing more to invest long-term, and only withdrawing money when they chose. The tax system encouraged people to spend any other savings first, keeping pension funds for their 80s and 90s – the original purpose.
