Pension death benefits may be at risk in Rishi Sunak’s spring statement | Personal Finance | Finance
The spring statement will replace a spring Budget, providing an update on the country’s finances, and implications for Britons. However, some experts believe it could also serve as an opportunity for the Chancellor to rake back more money spent on support measures over the last two years.
Express.co.uk spoke exclusively to Christine Ross, Head of Private Office – North, at Handlesbanken Wealth Management.
She discussed her fears the Chancellor could have pension death benefits on his agenda for targeting in the spring statement.
Ms Ross said: “There was a worrying publication from the Institute for Fiscal Studies (IFS) before the most recent Budget, which broadly highlighted they felt the death benefits under pensions were overgenerous.
“How money is passed on is important, and also how people legally avoid tax.
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If a person dies before the age of 75, there are specific rules which apply to their circumstances.
As long as a person has nominated beneficiaries, these individuals will have no income tax or inheritance tax to pay on the pension in question.
They will be able to draw out of it at any point, and will not have to wait until the age of 55.
Furthermore, the beneficiaries of the pension will also become members of the scheme themselves, meaning they can pass down money to their loved ones.
Deaths after 75 have, by and large, the same rules, but there is one key difference to bear in mind.
If a member dies after 75, the person or people that inherit a pension will be required to pay income tax on it – but at their own rate.
Ms Ross continued: “That’s a massive benefit. You’ll have no inheritance tax to pay regardless of when the person dies.
“In addition, beneficiaries can leave money in there, grow it tax-free, and withdrawal as and when they wish.
“So, the IFS has said this is much too generous. There are people who have more than they need, and are just building up funds to pass on tax-free.
“Some would say this is unfair, and therefore the matter could well be targeted by the Chancellor going forward.”
The expert said she recommended clients look at other assets when it comes to later life planning.
For example, they could consider funds in their ISA instead of withdrawing from their pension.
Ms Ross added: “If you’re concerned about gifting, live off the assets in your estate and leave your pension alone.
“I hope it doesn’t feature in the spring statement, but it very well could, particularly as the IFS previously raised it.
“It doesn’t affect everyone, but it will have an impact. It isn’t just the super-wealthy, it is everyone who doesn’t use all of their pension.
“If this kind of change was made, I think it would really shake people’s confidence in pension saving again.”
