I come at the issue rather differently than Ros who is keen on protecting retirement wealth as a haven for those with inheritance tax problems. Well I don’t think this is top of the list of Government priorities despite there being plenty of lobbying from those who argue that pension freedoms was really a Tory plan to keep the rich’s estate intact through not spending the pension pot.
But I do agree with Ros that there has been a lack of thinking of how pensions can be brought back to help people to pensions paid to them to spend or maybe to be gifted to people , businesses even, who need cash.
Here is Ros’s lament for pension freedom which she sees disappearing
It is of course ludicrous that people will end up purchasing annuities that provide very little to the person who is paid the income and do very little for the UK economy.
There are two collective alternatives to annuities, neither of which make it much into the pages of Money Marketing or the agenda of wealth managers. The first is CDC, a product that should be considered DB without the guarantees. The other is a pension which people can transfer there pensions into. There are two good examples that have existed for some time, the first is the Local Government Pension Scheme (there are around 700,000 members) and the other the NHS – unfunded but with equal numbers, Both take DC pots into the pension schemes and swap the pot for pensions. There are a handful of private DB pensions that still take transfers in of DC pots. One DB plan – UKAS – is hoping to offer a transfer-in policy to its DB scheme.
I think , like Ros , that the attraction of keeping a pot of wealth that should be spent on pensions is a bad idea. It is a sitting target for HMRC and a mess for your executor.
Steve Webb also points this out on Linked in
The inheritance tax raid on pensions will pile misery on grieving families
Tens of thousands of people a year face months of extra bureaucracy after the death of a loved one
Leave executors out of it
It is a different approach to the same problem. Pension Freedoms were never designed to make problems for executors (I am one and know how tough that is). I would like to see executors released from pension inheritance tax problems.
The answer is simple, buy into a pension whether guaranteed or not, you need not invest in an annuity (though you can if you like them), we should make pensions popular again.
We are told that pensions should invest in infrastructure which is illiquid. However if there are pensions undrawn at death they will be subject to IHT. Illiquid have no secondary market so will suffer a haircut. So advisers will have to consider avoiding illiquid investments. With tax at an eye watering 70-83% plus the impact of discounting the illiquid needs to have more thought. Perhaps the ability to take all of the capital with a one time charge after age 75. This would give money today which is what the government desperately need.Plus IHT if not gifted.