From April 2027, unused pension assets are expected to fall inside the inheritance tax net on death. For deaths after age 75, your pension could be hit by a triple whammy:

🔴 40% inheritance tax.

🔴 Loss of the Residence Nil Rate Band RNRB for net estates of £2m+ (at a rate of £1 for every £2 of assets).

🔴 45% income tax when your beneficiaries withdraw this money.

This isn’t a headline rate though, but it can easily apply to wealth for many families with reasonably-sized pensions and other savings, a modest family home, and adult children as beneficiaries.

The decade long rule of “leave your pensions until last” is no longer going to be automatically optimal for many. Drawing on pensions earlier, and paying some income tax throughout retirement, may now materially reduce the total lifetime tax paid by families.

As ever, this is a planning issue, not a product one – so you should seek robust and well-considered advice, that models your full financial future. (Tax rules are subject to change, outcomes depend on individual circumstances, seek proper professional advice).

Too rich for pensions?

I know many rich people who have swapped DB pensions for DC pots so that they can have wealth to pass between generations.

For the very richest, this may prove a horrendously expensive mistake and if I had been advised to do this by an adviser , I would have asked if the chances of the beneficial tax rules that surround wealth in a SIPP wrapper could withstand the arrival of a Labour Government.

Along with VAT on private education fees, the IHT on unspent DC pension pots is most hated by those with excess money to their needs. Both education and retirement income can be “bought out of” so exclusivity is achieved.

The Labour Government has raised the bar.  There is a possibility that a future Government might reverse the tax increase- but I doubt it will happen. Because there really is no public outcry against these taxes (in the way that other tax rises have been shouted out – even inheritance tax on farms). Labour’s popular taxation increases prove resilient under right-wing parliaments.

The message is to make the state education system better, our health system the NHS and our pension system delivered by a few funds and by the tax payer. You can of course live outside education, health and pensions but you must recognise there is a high price to pay for exclusivity.

Pensions should bring us together

Although occupational DB pensions had pernicious executive sections, they were fundamentally collaborative and collective in investment.

I expect pensions will return to these two “C’s” with CDC where , were the rich to stop whingeing for a moment, they’d see that their better health will give them more by way of pension, simply because rich people live longer.

CDC pensions are not exclusive, they are inclusive of the boss and the the meanest paid, they all share in the deferred pay offered by what is a mutual endeavour.

It may not be possible for the rich and old to use CDC and they may choose instead to use an annuity. Either way, they will join a mortality pool that will include all types of “lives” living all kinds of lifestyles.

Here there is a democracy that is set against the right wing individuality of Conservative and Reform and covers Reform, Liberal and Labour politics. It also covers smaller parties like Hilary Salt’s (fighting for a parliamentary seat in Manchester).

I would ask those who are fed up that their pension’s wealth is facing ruinous tax to consider what Hilary had to say as she retired from a lifetime as a pension’s actuary

The link doesn’t work but I think you will have got the gist by now!