Inheritance Tax on Pensions: A Reform Under Fire

A controversial budget proposal by the British government is causing unrest in the financial world: The planned introduction of inheritance tax on unused pensions could destabilize the existing pension system and lead to higher tax burdens for recipients, as well as longer waiting times in inheritance processing, warn asset managers. Michael Summersgill, CEO of the investment platform AJ Bell, expressed his concerns in a letter to the Chancellor of the Exchequer. The changes proposed by the government, set to take effect in April 2027, could generate about 1.5 billion pounds annually by 2030, according to official estimates. However, the implementation is described by Summersgill as one of the most complex and costly methods of taxing unused pensions. The idea of imposing multiple taxes on pensions after death places enormous burdens on taxpayers, especially for higher-earning recipients. Experts also see cause for concern in the administrative processing. Additional administrative burdens and the obligation to handle inheritances through procedures like probate could delay the receipt of funds. This would be particularly problematic in cases without a will or with multiple scattered pension accounts, Summersgill warned. Asset management companies like AJ Bell, Hargreaves Lansdown, and Quilter are preparing for the potential changes. Helen Morrissey from Hargreaves Lansdown emphasizes that delays in settling taxes could lead to additional financial burdens in the form of interest payments. Jon Greer from Quilter criticizes the lack of transitional arrangements that would allow those affected by the reform to adjust fairly. In his view, the government should find a balance between simplification, fairness, and practical feasibility. A Treasury spokesman, on the other hand, emphasized the necessity of using pension savings for their original purpose and not as a vehicle for wealth transfer.