The House of Lords appears to be fighting a rearguard action to keep the wealthy wealthy if they choose to keep their pension savings in “pots”.
Of course many rich people chose to take their pensions into pots in the decade leading up to the pension transfer crash in 2022. It seemed a good idea to have your pot in a tax-free pot to pay to the next generation. If money had stayed in pensions (DB pensions) this would not have been a question , the pension would have paid till you died and then so long as your spouse or dependent lived.
But the wealthy didn’t see it that way, they saw up to 40 times the pension as a CETV and grabbed their money. I was at an FT event where a certain Lady who is now a Baron argued for taking DB transfers while the going was good.
The spurious argument being used in the House of Lords is that executors are ill-prepared to meet the 2027 deadline when pension pots left undrawn or un-annuitized or swapped for CDC pension will be punished.
The violins are very small. The executors have already had two years to get their act together and they have another year to get prepared. But we are supposed to feel sorry for all on wrong side of inheritance tax thresholds.
My advice to those terrified of inheritance tax is to talk to a good broker such as Retirement Line about purchasing an annuity for yourself and those dependent on you. You should get a great annuity for the money that came out of your DB plan and if you want to keep your money invested, get a good adviser or wait till Retirement CDC in 2028.
Pension pot-holders – you should not find yourself inconvenienced when you die, nor need your inheritors. That you have an inheritance tax liability tells me you are in a financially advantaged position. You’ve had 2 years – you have 1 still to go.
A problem comes when the personal representative doesn’t know about all the pension pots of the person who died. This can happen when somebody “picks up the pieces” after a death. I have had a couple of instances where a pension company has discovered a customer has died and then tracked down the personal representative 6 years later. It could be that the Pensions Dashboard will help with this (so long as the personal representative is allowed access), but there do need to be reasonable rules to deal with such a situation.
Thanks Richard, I think the dashboard point is very useful as it will pick up pots in drawdown or awaiting drawdown. I expect the dashboard will arrive at the same time as the IHT situation. I will mention this to the Peers I know who I know are worried, Steven Webb has been very good on this (including on Pension PlayPen).
These pensions details after death can’t be that much different from executors having to identify gifts made in the last seven years. Executors need to review bank statements for large or regular transfers, examine cheque stubs if cheques may have been used, check for property sales or unusual cash withdrawals. Executors should also ask likely beneficiaries and/or family members to disclose any gifts received in the previous seven years.
If an executor discovers additional assets after IHT has been finalised and the estate accounts closed, he/she still has a legal duty to report these findings to HMRC and take steps to rectify the estate administration. The executor remains personally responsible for settling any additional tax owed.
Thanks Derek. I know that it is tough to get inheritances sorted but it will get easier, it is much easier getting banking done these days and it should become much easier for pensions too.
Before repetition is mistaken for correctness .
Pensions passed to others are NOT TAX FREE
The money when drawn after the death of the pension creator are taxed as income in the hands of the beneficiary at rates up to 45%.
The amount of IHT collected will be relatively small but the damage to the confidence in pension provision dramatic. These are the people who support the pensions of their workers.
Start promoting prudence instead of punishing it. Already this decile pays 34% of all income tax.
“The violins are very small. The executors have already had two years to get their act together and they have another year to get prepared. But we are supposed to feel sorry for all on wrong side of inheritance tax thresholds.”
How would you feel if the more prudent adopted the same attitude towards those who cannot provide for themselves and who get welfare payments?
Some would call it callous, and a disgrace. Best to avoid double standards