This nonsense from the Thunderer is a disgrace. To be clear, if a lifetime income is being paid, whether the income is as a guaranteed defined benefit pension, whether as an annuity purchased from an insurer or whether it’s the wage in retirement provided by a CDC pension – there is no inheritance tax to be paid when the pensioner (s) are dead.

The vast majority of the nation’s money that comes to us in retirement is from the state pension. That isn’t counted towards your IHT payment threshold either.

The arrogant assertion that the high-end savers keeping their money in pots have a right to pass the pots to inheritors without IHT has gone unchallenged for too long.

I am glad that from next April pension pots will be liable to IHT for those lucky few who didn’t work out that their “pension” is supposed to be just that.

The Government’s point is sound. Tax relief is given to build up money to be returned in retirement as a lifetime income. It is not given to make the wealthy – wealthier (at the expense of everyone else).

Here’s Tom’s way past the iniquitous IHT tax charge. He is of course absolutely right, though there are alternatives to annuities which have been talked of on this blog. They including transferring pots into a public sector pension (LGPS included) and the nascent CDC scheme (if you’re lucky enough to be in one)

With the government set to impose double — in some cases triple — tax charges on inherited pension pots from April you may be interested in a partial route around the problem.

To recap on the tax changes: defined contribution pots will become part of an estate for inheritance tax purposes for the first time next year. These are the type of pensions where what you get in retirement depends on how much is paid in and how your investments perform, unlike a final-salary pension where benefits are guaranteed and linked to inflation. In addition, if you die after 75 (as most do), when your beneficiaries come to take any remaining money from your pension pot it will be subject to income tax.

Then the money has income tax applied to subsequent withdrawals by the beneficiaries, meaning the 60 per cent that is left could be reduced by a further 40 per cent if they are higher-rate taxpayers. The cumulative tax take on pension pots can be as much as 67 per cent if the beneficiaries are additional-rate taxpayers.

Now to the solution. Perhaps unexpectedly, buying an annuity — an insurance product that pays out an income in exchange for a lump sum — could offer a way around the problem for some savers.

First, the rates on them are starting to look interesting. A 65-year-old in reasonable health could get a fixed income of about 8.1 per cent. If you’re in moderately poor health or a smoker you’re looking at over 8.5 per cent. This means you could get your money back in about 12 years, and if you fancy your chances in the longevity stakes you could eventually see a return of perhaps double your investment.

Even if you buy an annuity with payouts linked to inflation you are looking at a rate of 5.5 per cent to 6 per cent. Compare this with pension drawdown — where you leave your pot invested but withdraw income you need. Natural yield on your investments is going to deliver between 3 per cent and 4 per cent, depending on your equity/bond mix, so you can take that much and expect your pot to last. You could, however, withdraw more and accept that you will be running down the pot faster, knowing that when you die any money left could be subject to inheritance tax.

Once you have bought an annuity the capital is gone. This means it won’t be subject to inheritance tax and it won’t reduce your main residence allowance. If you don’t need the income to live on you can immediately start giving it to your children, because the “gifts from income” rule means it won’t later be counted for inheritance tax purposes. You will still pay income tax on that annuity income but you will have avoided inheritance tax; the longer you live, the greater the benefit.

Even if you do need the annuity income to live off in retirement, it frees you up to optimise your income tax and inheritance planning in respect of your other assets. For example, having secured your retirement income with the annuity you could give money to your children. If you live for seven years after making the gift the money will fall outside your estate for inheritance tax.

There are a lot of moving parts in all this, and everyone’s circumstances are unique, so a trusted adviser could make a big difference.

After George Osborne introduced pension freedoms in 2015, removing the requirement to buy an annuity with your pension pot, the sales of the products collapsed. Savers took the opportunity to keep their pension pots invested and keep control of their money in retirement. It’s just possible that this new punitive tax regime may start to reverse the trend.