AJ Bell calls on government to guarantee pension tax incentives

AJ Bell has urged the government to commit to retaining key pension tax incentives and end speculation over the future of tax-free cash and tax relief. 

The wealth manager launched a parliamentary petition on 1 October calling for a public commitment to a “Pension Tax Lock”, pledging not to alter tax-free cash entitlement or pension tax relief for the duration of this Parliament.

The petition (which you can sign, as I have by clicking the link) has already attracted more than 4,000 signatures and will require 10,000 to trigger a government response.

AJ Bell said a formal commitment would provide much-needed certainty for savers, allowing millions to plan for retirement with confidence.

The firm has long campaigned for a Pension Tax Lock, but the new petition invites customers, advisers, the wider public, and industry stakeholders to back the cause directly.

Tom Selby, director of public policy at AJ Bell, said: “When people save in a pension, they enter into a tax pact with the government. Take-home pay today is sacrificed for the long term, on the proviso that it will instead be taxed on withdrawal and comes with the added benefit of a 25% tax-free element.

“That is the foundation upon which the retirement plans of millions of Brits are built and requires a firm commitment to stability from government, matching the long-term financial decisions of savers making preparations for retirement.

“Committing to a Pension Tax Lock would show government is serious about a fair deal for workers, allowing today’s savers to enjoy the same pension tax incentives as their parents. It would also lay down the gauntlet to any future government tempted by a pension tax raid, offering genuine security to savers through a policy commitment that doesn’t require any increase in government spending.”

Selby added that stability would also benefit the wider economy by encouraging people to save more, leading to greater investment in UK businesses.

AJ Bell warned that continued speculation about changes to retirement incentives undermines public confidence and risks prompting people to make irreversible financial decisions based on fear rather than long-term planning.

The firm’s proposed Pension Tax Lock calls for government to protect two key pillars of the pensions system:

• Tax relief – maintaining the principle that pension contributions receive tax relief at an individual’s marginal rate, with tax paid on withdrawal in retirement.

• Tax-free cash – preserving the right to take 25% of a pension tax-free, up to the current maximum of £268,275.

AJ Bell said maintaining these core incentives would reinforce personal responsibility and strengthen the UK’s long-term savings culture.

Please feel free to pass this to anyone you think might find it of interest…..and who might be inclined to sign the petition!

As always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

2025 Budget Speculation

Here we go again.

After much speculation about what would be included in last year’s 2024 Budget, recent reports suggest significant changes await us in this year’s Budget.

If you believe what you read, the changes could affect anything from capital gains tax, inheritance tax, pensions and maybe even ISAs.

While investors are left wondering whether they should act now or wait, the good news is we’ve been here before. Last year, we faced similar uncertainty and widespread speculation about dramatic pension reforms, inheritance tax overhauls, and sweeping allowance reductions.

Our guidance was simple: wait for facts, not speculation.

How did that work out? Some feared changes didn't materialise, and others were less dramatic than predicted.

Capital gains tax rates increased from 10%/20% to 18%/24%. Stamp duty surcharges increased from 3% to 5%. But the biggest actual change - pensions entering inheritance tax from 2027 - wasn't even widely predicted.

Investors who avoided hasty decisions based on speculation were better positioned than those who reacted to every rumour.

This Year's Speculation

Current reports suggest the Treasury will be looking to find an extra £30 billion in tax rises.

The chancellor will be incentivised not to breach any manifesto pledges, and therefore income tax, VAT, and National Insurance appear to be safe from reforms.

This leaves room to generate the necessary revenue through adjustments to capital gains tax rates, pension reforms, changes to inheritance tax rules, restructuring of the ISA allowance, and various property tax adjustments. However, even this narrowed-down list does not provide enough information to base any firm recommendations on.

The same problem, therefore, remains. We don't know the details, timing, or even whether these changes will happen. Speculation often misses the mark while creating unnecessary anxiety. Political and economic realities change quickly.

Why "Wait and See" Is Still Sensible

Last year proved that reacting to speculation rather than facts typically leads to poor decisions. Waiting for official announcements means you can base decisions on actual proposals, understand the real impact on your situation, and avoid unnecessary complications.

For now, our recommendation is to focus on what you can control. Review your current arrangements to ensure you're using existing allowances and reliefs. Above all, we suggest avoiding significant changes based solely on media rumours.

Last year's patience served our clients well. This year, despite more intense speculation, the same principle applies.

When the budget is announced, we'll have facts to work with. Until then, patience beats panic, and facts beat speculation.

As always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

House of Lords to scrutinise Pension IHT proposals

One of the reasons I have been cautioning against knee jerk reactions in response to the government’s proposals on Pensions and IHT is that the die is not yet cast AND, we still have 18 months before the proposals become law……if they ever do.

What follows is from Dan Cooper at Money Marketing Magazine – I read these publications, so you don’t have to!

The House of Lords is to scrutinise controversial plans to include pensions in inheritance tax (IHT) calculations from April 2027.

The Lords’ Finance Bill Sub-Committee today (17 September) launched a call for evidence to consider the government proposals.

The Lords are inviting responses on how the reforms will work in practice, as well as whether the government has sufficiently taken into account the impact of the reforms on personal representatives and pension schemes.

The plans, which have been met with widespread criticism since they were first announced in the Autumn Budget last year, mean any unspent pension assets on death will be treated as part of the individual’s estate.

Once passed to the beneficiary, income withdrawn from the pension may then also be subject to income tax at their own marginal rate, depending on the age of the member when they died.

The double taxation proposed means that pension assets will be subject to a 64% effective tax rate on death where the pension pot exceeds the IHT nil-rate band allocated to the pension and the beneficiary is a higher rate taxpayer, rising to as much as 90% or more where the residence nil-rate band is tapered away entirely.

The government’s technical consultation on the proposals closed in January and in July, HMRC published draft legislation, confirming it plans to go ahead with the plan.

However, it confirmed one fundamental change: instead of pension scheme administrators handling the reporting and payment of IHT on unused pension funds on death, this responsibility will shift to the personal representatives (PRs), or executors, of the estate.

However, AJ Bell, which has regularly voiced its disapproval of the IHT on pensions plan, claims this will still create complexity and confusion.

The firm’s head of public policy, Rachel Vahey, added: “Despite a deluge of criticism of their original proposals, the government stubbornly decided to press ahead, changing the detail to push the responsibility of calculating and paying IHT firmly on the shoulders of personal representatives. “But it quickly became apparent the new proposals didn’t resolve any of the complexity; instead, they merely create new problems for bereaved families.

“Hopefully the Lords will be able to see what effect this will have and ask the government to change direction. Bereaved families will face a huge administrative burden, with the government insisting they settle the IHT bill within six months.

“Many people have complex financial affairs, especially those who die unexpectedly, meaning settling the bill quickly may not be straightforward.

“But it’s not too late. Ministers still have time to see that these proposals are not the best way to achieve their objectives.”

Vahey said there are alternative solutions to taxing pensions on death that won’t cause the administrative frustration, delays in payment and concerns for bereaved families that the current set of proposals threaten to, while still raising the same amount.

She believes income tax applied on withdrawals at the marginal rate of the beneficiary would be a far simpler alternative.

It means those inheriting pensions with the highest incomes pay more tax, while also offering simplicity given pension assets are already subject to income tax where the member dies after age 75.

In January, the CEOs of AJ Bell, Hargreaves Lansdown, Interactive Investor and Quilter signed a joint letter to the chancellor’s office opposing the plans.

According to AJ Bell research, pension IHT proposals are the most heavily opposed of the government’s key tax raising measures announced in its first year in office.

Just a fifth of Brits (21%) saying they support the policy, due to come into force from April 2027, while 44% say they’re against the government’s plans.

While those with influence are talking about this, there is still hope that common sense might prevail.

As always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Ros Altmann (ex-Pensions Minister) on IHT on Pensions!

The following is an article written by Baroness Altmann, giving her take on the imposition of Inheritance Tax on unspent pension funds from 2027.

“The Government has announced more detail about how it proposes that IHT on pension funds should be dealt with. I believe its proposals will be almost unworkable and will undermine the future of Defined Contribution (DC) pensions.

Such retrospective taxation undermines accepted norms of pension policy, making people less likely to contribute in the first place.

A couple of significant aspects of the original announcement have been changed.

They no longer plan to impose IHT on most death benefits, which is at least some good news. It will not now be up to the scheme administrators to arrange IHT payments after being notified of amounts by the executors, which of course all pension funds were up in arms about.

The industry, understandably, wants to avoid the horrendous delays, complexity and possible liabilities that would have involved.

However, instead of pension providers – who of course have professional departments to deal with pension administration matters – the Government plans to put the burden on the deceased person’s personal representatives (PRs), who are dealing with the whole estate. The changes, due to start in 2027, sound like a recipe for disaster and chaos.

Most people will have an incentive to take as much money out of their pension fund at the earliest possible date

Including all the person’s pensions in the IHT regime places potentially new burdens on Executors or PRs to find all the pensions – but we know there are huge numbers of ‘lost pots’ that even the deceased person may not have known about. They will have to identify all unused pensions, report them on the IHT Return and arrange for the tax to be paid, before distribution.

And all this while many of them will be bereaved relatives who are still coming to terms with the loss of a loved one and have never had much to do with pensions before.

The Government also plans to impose IHT on all unused pensions, even before age 55. So most people will have an incentive to take as much money out of their pension fund at the earliest possible date – especially if they are earning under the 40% tax threshold.

They can take this money at 20% tax, rather than risking dying soon and losing 40% of it. It is true that a spouse or civil partner can inherit the pension tax-free, but what about those who are single? This does not seem to be properly thought through.

It is also not clear who will inherit the pension? What if the Expression of Wish Form attached to the pension, contradicts something said about the beneficiaries of the will? This is a recipe for delays, chaos and potentially damaging liabilities on executors.

Beneficiaries may dispute who should inherit the pension, the executors may have to take legal advice, they will not know what to tell the pension provider and, meanwhile, interest will be running on IHT not paid within six months of death.

And what if a new pension comes to light after the estate has been distributed – perhaps an old entitlement that was not known about? Will the executors be blamed for not finding this and then be personally liable for the tax and interest?

Imposing IHT on pension funds is a disaster for the future of DC pensions. Such retrospective taxation, after so many people have already made careful plans for later life, undermines the principle of putting money aside for the long-term.

Indeed, there have already been significant withdrawals and the aim of encouraging more long-term investment by our pension funds, especially in less liquid assets, will be less likely to materialise.

People on average earnings are the most likely to strip their pension fund quickly, leaving nothing to live on apart from state benefits, if they survive to a ripe old age. These are the ones who need pensions most and the core group being targeted by auto-enrolment.

This policy is yet another example of how the Treasury seems determined to make pensions more and more complicated

This policy is yet another example of how the Treasury seems determined to make pensions more and more complicated. Time and again, new complexities are added.

Why on earth can’t the Government make things simple? I understand they wish to recoup some of the generous tax relief that has helped build up the pension fund but the pension should be dealt with separately, outside the estate.

For example, it would be much less damaging to pensions and much easier to manage, if there was a specific 20% charge on unused pension funds, which the pension provider could deduct directly and pay over to HMRC. No faffing about with IHT Forms.

Others have suggested a mandatory 10-year drawdown of the pension after death, although there may still be difficulties identifying who the beneficiaries are and who would be allowed to withdraw the money.

It’s not too late to avoid this disaster. I do hope the Government will listen to reason.”

Ros Altmann was pensions minister 2015-16 and is a member of the House of Lords

As always, if you have any questions—about this topic or any other aspect of your financial planning—don’t hesitate to contact me. And if you know someone else who may find this information useful, feel free to pass it on.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

A Petition to Stop IHT on Pensions!

When change is forced upon us — such as the proposed inclusion of unspent pension funds within the scope of inheritance tax (IHT) — it’s easy to feel powerless and frustrated. It can seem as though the outcome is inevitable and beyond our control.

But perhaps it isn’t.

Pensions specialist Nathan Bridgeman has launched a petition urging the government to keep pensions outside the inheritance tax net. If you agree, you can make your voice heard by signing via the link at the bottom of this page — and consider sharing it with friends and family who may feel the same.

Bridgeman, who is the director of SeaBridge Ssas, had his petition accepted by the House of Commons yesterday (August 7) and currently has 137 signatures (it is now over 3,000).

The petition, titled ‘Stop the double tax of pension funds and death benefits’, outlines that the tax on pension funds and death benefits is a disincentive for most people to funding a pension. It highlighted how when a person dies, the new rules would result in a “disproportionate and unfair” double taxation — IHT and income tax — on beneficiaries.

“We think this double taxation — income tax and inheritance tax means a lot of beneficiaries may have to pay 67 per cent tax,” the petition said.

Bridgeman told FT Adviser his firm hears a lot about the family farm tax and winter fuel allowance, but this reform would also affect “hard working savers”.

“It feels morally wrong to move the goalposts especially for elderly people who don’t have time on their side to change their long-term tax and financial planning. Not all pensions are liquid.

“Our Ssas schemes own the family farm, factory, office or shop and it doesn’t just affect the business owner, it affects the company and employment as well as the pension fund that owns the property,” he added.

The petition needs 10,000 signatures for government to respond and 100,000 for it to be debated in parliament.

Bridgeman said his firm will continue to keep this topic on the agenda and hold the government to account.

“This tax grab is a disincentive to save into a pension and has huge and disastrous consequences given the pension ticking time bomb we face in the UK.

“We need stability in pensions, not for it to be used as a political football,” he said.

Bridgeman said he had already received 634 emails and messages from IFAs and pension savers thanking him for starting the petition and stating their intention to sign it.

You can sign the petition here.

As always, if you have any questions—about this topic or any other aspect of your financial planning—don’t hesitate to contact me. And if you know someone else who may find this information useful, feel free to pass it on.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

It’s the Climb!

I know I have rather inundated you with ‘Round Robin’ emails this month, but I thought the following was too important a message not to share.

The FTSE 100 and the S&P 500 in the States have delivered double-digit returns this year.

And while that’s great news for investors, it does have a drawback:

The over-use of the phrase “All-Time High”.

There are two problems with it.

First, the phrase itself (and it’s abbreviation “ATH”). It’s just a bit… American… isn’t it? No self-respecting, bowler-hat wearing, umbrella toting British investment index should be boasting so crassly*…

Surely the more appropriate response is something like this?

Source: Monty Python

Secondly, there’s the attention and emotion the phrase creates.

Because an “all-time high” sounds important. It feels like you should do something, right?

And often, we hear from clients in these moments, wondering if they should sell as “the market is near its peak” or something to that effect.

But markets aren’t mountains! It’s not a case of reaching the top, then having nowhere else to go! We’ve written about this before, but we think it’s worth repeating.

Stock markets should keep reaching higher levels as time goes on – that’s what investing is all about!

In fact, a new high point is usually a stepping stone, rather than a ceiling. A comparison of the UK and US markets makes it clear.

After the dot-com bubble burst in 2000, it took the FTSE 100 until February 2015 to climb back to its previous high point.

In the ten years since then, it’s reached a new high point 84 times (the orange vertical lines – some of them are really close together). That’s an increase of about 33%…

Source: 7IM/Factset. Past performance is not a guide to future returns.

… and here’s the same chart for the US market. 315 new highs since February 2015; for a return of nearly 200%.

Source: 7IM/Factset, Past Performance is not a guide to future returns

Its not just that new highs are normal. It’s that you NEED them for growth.

So, if we’re going to come over all American about it, might as well go full Miley Cyrus:

Ain't about how fast I get there…

Ain't about what's waiting on the other side…

Source: Miley Cyrus

As always, if you have any questions—about this topic or any other aspect of your financial planning—don’t hesitate to contact me. And if you know someone else who may find this information useful, feel free to pass it on.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

IHT on Pensions: Why Now Could Be the Right Time to Consolidate

The recent publication of draft legislation on Inheritance Tax (IHT) and pension death benefits, due to take effect from April 2027, brings greater clarity—but also increased complexity—for families dealing with bereavement and estate administration.

Under the new proposals, pension death benefits will be brought within the scope of IHT for individuals who die from 6 April 2027 onward, with the responsibility for reporting and paying the tax shifting from pension providers to personal representatives (PRs). This change has significant implications—especially for those with multiple, fragmented pensions.

What’s Changing?

The new rules introduce a 4-stage process:

1. Scheme Valuation
Pension scheme administrators will have 4 weeks from the date of death to provide PRs with a formal valuation. If the scheme has discretion over beneficiary payments, it must also confirm how much is going to exempt (e.g. spouse) and non-exempt beneficiaries.

2. PRs Value the Estate
PRs must collect valuations from all pension providers, add them to the value of other assets, and assess whether an IHT account is required.

3. IHT Account Submission
Where tax is due, the PRs must apportion the liability across all pensions, notify HMRC, and inform both beneficiaries and pension schemes of the tax amounts attributable.

4. Payment of Death Benefits

• If no IHT is due (e.g. spouse exemption or value below the nil-rate band), benefits can be paid immediately—without waiting for probate.

• If IHT is payable, the burden falls on both the PRs and the beneficiaries, who are jointly and severally liable for their share of the tax.

Beneficiaries' Options (If IHT is Due)

1. Request that the scheme pays the IHT directly to HMRC.

2. Take the death benefits and pay the IHT themselves (note: if the member died after age 75, this will also trigger income tax—but HMRC will reduce the chargeable amount by the IHT paid).

Where the pension and estate beneficiaries differ, PRs have the legal right to reclaim the IHT paid on pension benefits from the pension beneficiaries, ensuring fairness across all recipients.

Why Consolidation Matters

This all may sound straightforward, but let me assure you: it will not be.

In our experience—and Adam and I have decades of it—pension providers are notoriously slow, inefficient, and error-prone when it comes to even the simplest of administrative tasks. And unfortunately, when families are grieving and vulnerable, this kind of avoidable chaos only makes things harder.

In my “Round Robin” of 22nd July, I noted:

“This complex process will cause bereaved families confusion and stress at a difficult time and doesn’t fit well with the support firms may want to provide people who are likely to be vulnerable following the death of a loved one.”

One simple but powerful step you can take to reduce future stress for your loved ones is to consolidate any fragmented pensions into a single, well-managed scheme. It will mean fewer valuations, less complexity, and more efficient communication between your representatives and the provider—just when clarity and simplicity are needed most.

What You Can Do Now

If you’d like to review your existing pension arrangements and explore the benefits of consolidation, please get in touch. We can talk through the options and assess whether consolidation is suitable for your personal circumstances.

As always, if you have any questions—about this topic or any other aspect of your financial planning—don’t hesitate to contact me. And if you know someone else who may find this information useful, feel free to pass it on.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Poor savings rates and inflation wipe 11p off every £1!

Any financial planner worth their salt will tell you that holding large cash balances as part of your long-term investment strategy is almost always a poor choice. Historically, cash has been a weak hedge against inflation—while your balance may grow slightly with interest, its real value (or purchasing power) typically erodes over time. To make matters worse, many people with substantial cash holdings fail to seek out competitive interest rates, which only compounds the negative impact.

 With the above in mind, I was drawn to the article below by George Nixon in yesterday’s Sunday Times Money Section.

 “Pitiful interest rates and high inflation have wiped an average of 11p off the value of every £1 left in a savings accounts over the past five years.

The financial data firm Moneyfacts said that its calculations suggest that the average savings pot has lost 11 per cent of its value, and it called for the Bank of England to keep its base rate at 2 percentage points above the rate of inflation to stop savers’ money being eroded by inflation.

Moneyfacts said that since 2020 the average annual consumer prices index (CPI) measure of inflation has ranged from a low of 0.9 per cent in 2020 to 9.1 per cent in 2022, while average savings rates ranged from as little as 0.5 per cent in 2021 to 3.86 per cent last year. It said that £1 saved in 2020 that earned the average savings rate would now be worth 89p in real terms after inflation.

It comes as the chancellor, Rachel Reeves, is considering a shake-up of cash Isas to encourage savers to invest their cash instead.

Moneyfacts argued that the Bank of England’s base rate, which affects mortgage and savings rates, should be set at about 2 percentage points above the CPI measure of inflation, which the Bank aims to keep at 2 per cent.

Adam French from Moneyfacts said: “The Bank of England must play its part in setting sustainable rates that reward savers and ensure a steady supply of deposits which can be used to fund mortgages, loans and other consumer credit products.”

Bank rate was at historic lows from 2009 for more than a decade — bad news for savers but great for anyone with a mortgage. It then rose rapidly from its all-time low of 0.1 per cent in December 2021 to a 15-year high of 5.25 per cent in August 2023 as the Bank tried to tackle inflation, which peaked at 11.1 per cent in October 2022. Bank rate has been cut four times to 4.25 per cent over the past year, and is forecast to gradually fall to about 3.5 per cent by next year. CPI inflation for the past year was 3.6 per cent.

All this has meant that there have not been many times in the past decade when savings rates have not beaten inflation.CPI averaged 9.1 per cent in 2022 but savings rates were 1.48 per cent on average, Moneyfacts said. Savings of £10,000 would be worth £10,148 after a year at a rate of 1.48 per cent, but if inflation was 9.1 per cent, that money would be worth £9,302 in real terms.

French said that during the 12 years between 1995 and 2007 savers enjoyed returns at an average of 2.06 percentage points above the rate of inflation.

Economists and campaign groups disagreed with Moneyfacts’ call to keep Bank rate at 2 percentage points above CPI. They said the Bank had a responsibility to set rates based on the needs of the wider economy.

Julian Jessop from the Institute of Economic Affairs, a free-market think tank, said: “The appropriate ‘neutral’ interest rate should not just depend on what is best for households. A common rule of thumb is that the real interest rate should be set equal to the potential growth rate of the economy, which would point to a rate below 2 per cent.

“What’s more, the Bank’s main job is to control inflation. If this means that interest rates have to be significantly higher than the neutral level for a prolonged period, or significantly lower, then so be it.”

Simon Youel from Positive Money, which campaigns for a more democratic financial system said high street banks, rather than the Bank of England, deserved more of the blame for savers’ poor returns.

He said: “Bank rate was more than 2 percentage points above inflation for much of 2024, but this didn’t mean a better deal for savers — the problem is that profiteering banks resisted passing on higher rates to customers.”

The big high street banks — Barclays, HSBC, Lloyds and NatWest — were repeatedly criticised by campaign groups and MPs for failing to pass on higher interest rates to savers and paying 2 per cent or less on easy-access savings accounts when Bank rate was at its peak.

Barclays now pays 1.16 per cent, HSBC 1.3 per cent, Lloyds 1.05 per cent and NatWest 1.15 per cent on their easy-access accounts. In May last year the Bank of England said the passing on of its higher base rate to easy-access rates had been “partial and slow overall” and that savings rates were about 2.5 percentage points below Bank rate.

Youel said: “High interest rates are a form of economic rent and should be kept as low as possible.

“The Bank of England targeting interest rates of 2 percentage points above inflation would mean households and businesses paying huge rents to banks, and would probably stifle investment and employment.”

For now savers should try to make sure that their money earns as much as possible. The app-based bank Chase is paying up to 5 per cent on an easy-access account, if you already have a current account. GB Bank has a one-year fixed rate of 4.53 per cent.

Anna Bowes from the financial advice firm The Private Office said: “Even though inflation is stubbornly sticky, the good news for cash savers is that there are plenty of savings accounts that are paying more than 3.6 per cent for those prepared to shop around.

“It’s a shame that so many people leave their cash festering in a low-paying account with a high street bank.”

Interest rates are on a downward trajectory, meaning today’s attractive rates may not be around for much longer. If you're currently holding a large cash balance, now could be an ideal time to reassess whether that strategy still makes sense. I’d be happy to advise on alternative approaches—ones that aim to outpace inflation, the silent killer of long-term wealth.

That said, it's important to note that everyone should maintain a reasonable cash reserve for short-term emergencies or known upcoming expenses. It's not about eliminating cash entirely, but about being strategic with the excess.

Please feel free to pass this to anyone who might find it interesting. 

As always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

The results are in, and it’s not good news!

As you know, we have been awaiting the result of the government's consultation on whether to apply Inheritance Tax (IHT) to unspent pensions; well, we don’t have to wait anymore.  

The following is an article by Alina Khan in today’s FT Adviser:

“Published yesterday (July 21), the government put out its draft legislation to apply IHT on unused pensions funds and death benefits.

Although the proposals remain largely unchanged from when Rachel Reeves announced them in the Autumn Budget, the government has made a few revisions to what it had previously announced.

Between October 2024 and January 2025, the government consulted on the process for reporting and paying IHT on unused pension funds and death benefits.

It proposed that pension scheme administrators would be liable for reporting and paying any IHT on the pension element of an individual’s estate.

Following the consultation, the government has announced personal representatives rather than pension scheme administrators, will be liable for reporting and paying any IHT due on unused pension funds and death benefits from April 6, 2027.

It also confirmed death in service benefits payable from a registered pension scheme will remain out of scope of IHT.

Government has ‘blown its opportunity’

Roddy Munro, pension specialist at Quilter, was thankful government had listened to some responses but was concerned without further amendments, how the policy was actually enacted risked “turning a targeted tax reform into an administrative minefield.”

“What we could end up seeing is a massive transfer of private wealth back to the state. What’s more, while only a small fraction of estates will pay more tax, a far greater number will face needless complexity, delays, and stress — often at the worst possible time,” he said.

HMRC has blown its opportunity to bin the original proposals, stubbornly sticking with a system that will create confusion, complexity and additional costs for bereaved families.

Rachel Vahey, AJ Bell

Andrew Tully, technical services director at Nucleus Financial was disappointed to see the government had not listened to “very strong views” that using IHT was not the best option to boost Treasury coffers.

“Including pensions within the IHT environment will deliver poor outcomes for customers, beneficiaries, personal representatives, the industry, and HMRC.

“This complex process will cause bereaved families confusion and stress at a difficult time and doesn’t fit well with the support firms may want to provide people who are likely to be vulnerable following the death of a loved one.”

A report released this month by The Investing and Saving Alliance, found alternative policies could raise the same level of tax revenues as bringing IHT into the scope of pensions.

Rachel Vahey, head of public policy at AJ Bell said: “HMRC has blown its opportunity to bin the original proposals, stubbornly sticking with a system that will create confusion, complexity and additional costs for bereaved families.

“Options were put forward by the industry which would have been far more straightforward than bringing unspent pensions into IHT, while still raising the same amount of tax.

“Although most savers will be unaffected and should not need to change their financial plans, some now face difficult choices about how best to arrange their finances. Many have saved and invested in good faith and now face the possibility of punitive rates of taxation when passing pension money to their loved ones.

“Bereaved families also face a huge administrative burden, with the government insisting they settle the IHT bill within six months. Many people have complex financial affairs, especially those who die unexpectedly, meaning settling the bill quickly may not be straightforward.”

Despite this disappointing outcome, it is important to remember that nothing will change until after 6th April 2027 (pension funds remain outside of one’s estate until then), and so making a knee-jerk reaction to this news will almost certainly be counterproductive.

Rest assured, I will be in touch again with my planning suggestions once the dust has settled on this news.

Please feel free to pass this to anyone who might find it interesting. 

As always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner

Financial Advice improves clients' finances – it’s official!

I hope I'm preaching to the choir here, but I hope you'll find the following from sonia.rach@ft.com interesting and/or reassuring.

“Almost two in five (37 per cent) of advised Brits have said they are £40,000 or more better off thanks to professional financial support.

Research from Standard Life’s Retirement Voice report indicated that three in four (77 per cent) people who receive financial advice believe their adviser has made them financially better off.

One in eight (13 per cent) of respondents estimated their financial adviser has helped to grow the total value of their pension, savings and investments by £30,000 to £40,000.

Some 14 per cent think advice has increased their finances by £20,000 to £30,000.

Warren Bright, head of intermediary advised distribution at Standard Life, said: “In today’s tough economic climate saving for day-to-day expenses, never mind the future, can be difficult.

“Professional advice helps to deliver tangible benefits for those speaking to an adviser — not only in monetary terms, but also in levels of confidence and financial wellbeing.

Standard Life’s research also found that ongoing advice delivers several benefits compared to taking advice on a less regular basis.

Among those who have an ongoing relationship with an adviser, 82 per cent said advice had improved their finances, compared to 72 per cent of those who said they only spoke to an adviser on an ad-hoc basis.

Furthermore, those who have frequent contact with an adviser were more likely to consider they are delivering value for money than those who took advice as and when they needed it (84 per cent vs. 79 per cent).

According to Standard Life, they were also more inclined to believe that their standard of living was better because of their adviser’s services (74 per cent vs. 65 per cent).

The research revealed that ongoing advice can also help to improve people’s financial wellbeing, with 77 per cent indicating feeling confident they know their options for using their pension savings.

Among retirees, those who take ad hoc advice are twice as likely to worry that they’re making bad decisions with their retirement finances than those who are still in regular contact with their adviser (21 per cent vs. 10 per cent).

Bright said: “We know that those who have an ongoing relationship with an adviser are more likely to enjoy these benefits than those who take advice on an ad-hoc basis, or not at all.

“With significant structural changes to the advice framework pending, the introduction of targeted support and anticipated moves to address adequacy, the role of professional advisers in helping build the financial security and confidence of more UK savers has never been more important.

“Professional, personalised advice will continue to play an important role in helping people make smart financial decisions, feel more secure about their financial position and achieve their long-term goals.”

sonia.rach@ft.com

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As always, if you have any questions about this piece or any other finance-related matter, please do not hesitate to contact me.

Yours sincerely,

Graham Ponting CFP Chartered MCSI

Managing Partner