Budget pensions rethink

The great post-Budget pensions rethink

I contributed to a very good artlicle by Moira O’Neill for the Financial Times on November 8 2024 entitled "The great post-Budget pensions rethink"

Moira wrote:

It is the biggest rethink on pensions since 2015 — and it will lead many carefully laid financial plans to be painstakingly unpicked.

The importance of pensions as a means of inheritance tax (IHT) planning — to be held for as long as possible so they can be passed down — has been turned upside down by reforms announced in last week’s Budget. From April 6 2027 most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes.

This could reduce how much of your pension goes to your partner and what you can leave to your children after you die.

Many advisers are busy working out how best to switch their clients’ pensions back to their original intended use — providing retirement income. This might involve reconsidering taking drawdown or annuities earlier than originally planned.

no reason to panic. In fact, the scale of the problem could be overstated.

Today, under IHT rules, a person can pass on up to £1mn with no IHT to pay, as long as they have received a nil-rate band of £325,000 from a spouse and the estate includes a primary residence. Only 4 per cent of estates pay IHT — charged at 40 per cent on any surplus assets.

By bringing pensions into the loop, the government estimates that an extra 1.5 per cent of total UK deaths will become liable to pay IHT. That’s 10,500 out of around 213,000 estates with inheritable pension wealth in 2027 to 2028.

Further to this, 38,500 estates will pay an average £34,000 in additional IHT because pension assets are included in the value of the estate.

But these are the revenues that HMRC says could be raised based on current financial planning behaviour. And those 49,000 estates have several tools at hand to reduce down the IHT bill. William Burrows at financial adviser Eadon & Co says: “It should be perfectly possible for people in their 60s and 70s to rethink their pension strategies.”

Read the rest of the article on the FT website