There is a particular feeling when someone hands you a set of keys. It doesn\u2019t matter whether it\u2019s your first flat or a house you have worked 20 years to afford. The weight of metal in your palm means something: this is yours.<\/p>\n
In the spring of 2014 George Osborne handed pension savers a set of keys. \u201cLet me be clear \u2014 no one will have to buy an annuity,\u201d he told the Commons. Your pension pot, he said, was yours. You could withdraw it as you chose, invest it as you wished and, from April 2015, pass it to your children without the punitive 55 per cent death charge that had previously applied.<\/p>\n
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Millions of people reorganised their retirement around that promise. They stayed invested, taking income from their pot as they wished instead of buying annuities \u2014 insurance products that guaranteed you a set income in return for a lump sum. They treated their pension as a family asset, something to be preserved, grown and inherited. <\/p>\n
Financial advisers built strategies around the new architecture.\u00a0I helped clients do exactly that \u2014 turning what had been a one-way income stream into a multigenerational asset.\u00a0By 2023, the last year for which data is available, more than \u00a370 billion of pension income had been accessed flexibly since 2015, according to HMRC. The keys worked. People moved in.<\/p>\n
Twelve years later, the locks are being changed.<\/p>\n
The double tax problem<\/p>\n
From April 2027, the government plans to bring pension funds into the value of a person\u2019s estate for inheritance tax purposes.\u00a0The Treasury\u2019s rationale is that pensions should fund retirement income, not serve as a wealth-transfer vehicle. The government calls it closing a loophole. Most of the people affected would call it something else.<\/p>\n
When someone dies after age 75 with a pension pot in what is known as drawdown (where the holder leaves it invested but has started taking income from it), the beneficiary \u2014 typically a spouse or children \u2014 will pay income tax on any withdrawals from that inherited pot. That isn\u2019t changing. What changes in 2027 is that the same pot will now also count for inheritance tax purposes. The two taxes stack.<\/p>\n
Take a \u00a3100,000 pension pot that is part of an estate that is large enough to be liable for inheritance tax. (You get a \u00a3325,000 inheritance tax-free allowance \u2014 \u00a3500,000 if your estate is worth less than \u00a32 million and you leave your main home to a direct descendant.) If the pot is left to anyone other than a spouse or civil partner (who do not pay inheritance tax) then 40 per cent tax on it will wipe out \u00a340,000. If the recipient of the remaining \u00a360,000 is a higher-rate taxpayer, who pays 40 per cent income tax on withdrawals, then another \u00a324,000 is taken. Of \u00a3100,000 the family keeps \u00a336,000 \u2014 an effective tax rate of 64 per cent.<\/p>\n
For additional-rate taxpayers inheriting from estates worth more than \u00a32 million, which get smaller inheritance tax-free allowances, the combined tax rate could be close to 87 per cent in extreme cases.<\/p>\n
\u00a0A protest petition sent to parliament labelling this \u201cdouble taxation\u201d has attracted 10,000 signatures, and the description is hard to dispute. No chancellor would dare announce a standalone tax rate this high \u2014 spread across two mechanisms, it slips through without a speech.<\/p>\n
The defence that falls apart<\/p>\n
The Treasury says that pensions should fund retirement, not inheritance , yet the government\u2019s own data makes the argument collapse, because the amount of time we spend in retirement is shrinking.<\/p>\n
Healthy life expectancy (the number of years you live in good health) at birth is now 60.7 years for men and 60.9 for women, according to the Office for National Statistics. Both figures are the lowest since that data was first collected in 2011. In Scotland the figure for men drops to 59.1 years and in Wales women can expect 58.5 years of good health.<\/p>\n
The average life expectancy, in any state of health, is 79.1 years for men and 82.7 years for women. The state pension age, meanwhile, is climbing from 66 to 67 by March 2028.<\/p>\n
Place those numbers side by side.\u00a0British men can expect nearly 61 years in good health but can\u2019t have their pension until 67. That is a six-year gap, and it is widening. For a Scottish man, it\u2019s nearly eight years. <\/p>\n
The government\u2019s target is that people should spend \u201cup to a third of adult life\u201d in retirement. A man reaching 67 with a life expectancy of 79 gets 12 years. <\/p>\n
A question of trust<\/p>\n
For those with estates worth less than the inheritance tax thresholds, the practical impact is limited. The income tax treatment on death after 75 remains the same. These new rules bite hardest on estates that are already liable for inheritance tax, and the pension pushes them further into that liability.<\/p>\n
This creates a different question: whether a pension remains the right vehicle for wealth that can\u2019t be spent in retirement. Insurance, gifting strategies and trust structures all look more attractive than they did 12 months ago.<\/p>\n
Beneath it all sits a more fundamental problem \u2014 trust.\u00a0Pension policy in Britain has changed direction so many times that building a 30-year plan requires a faith in political consistency that no living adult has witnessed. The lifetime allowance was introduced, raised, frozen, cut and abolished, all within 18 years. I have clients who ask me, only half joking, whether it\u2019s worth planning at all when the rules might change again before they retire.<\/p>\n
Pension freedom was granted with a standing ovation and is now being dismantled through the tax code, one budget at a time. When Osborne stood at the dispatch box, he handed millions of savers what felt like ownership. <\/p>\n
Twelve years on, the pension is still technically yours. You can access it, draw from it, invest within it, but the terms have changed so fundamentally that the original promise has been hollowed out.<\/p>\n
Jessica Cook is a partner in a financial planning firm<\/p>\n","protected":false},"excerpt":{"rendered":"There is a particular feeling when someone hands you a set of keys. It doesn\u2019t matter whether it\u2019s…\n","protected":false},"author":2,"featured_media":594877,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[45,49,48,133,131,132],"class_list":["post-594876","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-ca","tag-canada","tag-finance","tag-personal-finance","tag-personalfinance"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/594876","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=594876"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/594876\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/594877"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=594876"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=594876"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=594876"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}