Quilter has warned bringing pension pots into inheritance tax (IHT) scope in the way proposed by the government risks creating ‘significant problems’ for families.
The comments come as the technical consultation on the proposal closes today (22 January.)
The plans formed part of Chancellor Rachel Reeves’ (pictured) first Budget last October, as the government sought ways to increase the tax take to balance its spending plans better.
Jon Greer, head of retirement policy at Quilter, said: “As the government’s consultation on taxing unused pension funds closes, we recognise the need to raise tax revenues.
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“However, we believe the proposals as they currently stand risk creating significant problems for families, adding unnecessary complexity and delays at a time of grief.”
Greer explained that under the current plans, grieving families could face lengthy delays as executors are required to navigate a complicated process of gathering valuations, submitting forms, and paying IHT on pensions alongside other assets in the estate.
“This not only increases the emotional and administrative burden on families but could also lead to practical challenges, such as delays in accessing funds needed for living costs or settling immediate financial obligations,” he added.
In his view a better way to raise tax revenue without causing undue stress for families or undermining the purpose of pensions would be to reintroduce a flat-rate tax on unused pension funds after a nil rate band.
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A flat-rate tax has several advantages, in Greer’s view. It eliminates the risk of extreme rates of double taxation, ensures consistency for savers, and speeds up the distribution of pension funds.
“The consultation has been an important opportunity to highlight the practical issues of including pensions in IHT and the focus must be on finding practical solutions that minimise disruption for families,” Greer said.
“A flat-rate approach offers a fairer, simpler alternative that balances the government’s need for revenue with the importance of protecting pensions. We urge policymakers to carefully consider these alternatives to avoid unnecessary hardship for grieving families and ensure the tax system remains efficient and transparent.”
