The rule allowing individuals to leave a tax-free retirement pot is at risk as tax breaks for people who inherit a pension could be taken away, as reported by The Times.
Currently, if somebody inherits an untouched pension pot from someone who died before the age of 75, they do not need to pay any tax and if one inherits a pension from someone who died after 73 then they have to pay income tax.
The government has announced a plan to remove the age limit from April, meaning that anyone inheriting a pension may have to pay income tax on it.
Steve Webb, a former pension minister and partner at the consultancy Lane Clark and Peacock said the proposal had come “through the back door”. He said:
“If ministers plan to remove this pension tax break they should announce their plans publicly and have them properly debated.”
Recent news revealed Chancellor Jeremy Hunt has said that the average earners will be more than £1,000 a year better off in retirement – also increasing retirement pots by 12% – due to government plans to reform the pension industry.
The measures were set out at Mansion House where Hunt revealed that they could release as much as £75 billion from UK pension plans for investment in high-growth companies – also improving the returns enjoyed by members of retirement plans.
Jon Greer from the wealth management firm Quilter, said:
“It appears that quite significant changes to the tax treatment of beneficiary pensions have been put forward in a relatively underhand way under the guise of removing the lifetime allowance.”
Tom Selby from the investment platform AJ Bell said:
“The rules are still to be finalised in legislation and at this stage it is not 100 per cent clear exactly how pension assets will be treated on death.
This needs to be clarified urgently so that pension savers can make informed decisions based on the planned rules, albeit those rules could yet be re-written if a future government changes pension legislation again.”
The Treasury said that they want to keep 15,000 experienced people in work to help “grow our economy and clear backlogs”. The Treasury continued:
“Such as seniors in the NHS who had told us that pensions tax was disincentivising them from working. That is why we have abolished the lifetime allowance.
We look forward to working with stakeholders to craft the legislation which will ensure that our historical pensions tax cut delivers the right results for savers and the economy.”