Following today’s IFS publication titled: ‘Death and taxes and pensions’, Jon Greer, head of retirement policy at Quilter, warns of unintended consequences as he comments:
“Ending the tax treatment of pension pots on death on grounds of ‘fairness’ only makes the situation ‘fairer’ for the exchequer, not necessarily families especially those who may lose a loved one at a relatively early age where the financial impact can be significant.
“Changing the rules may have some unintended consequences too, such as pushing people to take their tax-free cash lump sum earlier than perhaps they would ordinarily do so potentially reducing the overall amount they have available for retirement. In the grand scheme of things, the lost revenue to the exchequer from this policy may not be significant compared to other areas of government spending, but may have a very positive effect for a material number of families which are not high earners or fit into some of the extreme examples highlighted.
“The financial impact it might bring to some families of people who die early should not be discounted. I know that losing a loved one is already a difficult and emotional time and having to worry about the financial impact of that loss can add even more stress. The tax-free nature of a pension pot on death at earlier ages can provide some much-needed financial support for those families.
“Given that IHT thresholds were recently frozen for a further two years at the Autumn Statement netting the government a further £1 billion in the main due to property wealth, more and more people will be paying inheritance tax anyway. These additional changes to pensions would drag even more people into paying what is often touted as one of the nations most hated taxes.
“Ensuring that everyone has the ability to save for their retirement and have some financial security in their later years is important for both individual well-being and the overall health of the economy.“