Despite revisions made in the draft legislation on bringing pensions into the scope of inheritance tax (IHT), significant concerns remain — and these could have real consequences for families at a time when they are most vulnerable, as John Westwood, pictured above, Group Chairman, Blacktower Financial Management, outlines below.
The government has shifted responsibility for calculating and paying IHT away from pension schemes and onto personal representatives. While this may simplify things for schemes, it risks placing undue complexity and stress on grieving families who often have little understanding of pensions or tax law. In my experience, the last thing families need during such difficult times is additional administrative burden and uncertainty.
Another serious issue is the unrealistic timescales proposed. Pension schemes are expected to provide a valuation of assets within four weeks of death notification — something that is near impossible where illiquid assets are involved. Likewise, the requirement for schemes to pay IHT within three weeks of a beneficiary’s request places both administrators and beneficiaries in an unnecessarily difficult position. Industry experts, quite rightly, are calling for these deadlines to be extended.
What troubles me further is the mismatch between pension and IHT timescales. IHT must be paid within six months of death to avoid interest, yet pension rules allow two years before income tax applies. Such inconsistencies only serve to confuse families and advisers, leading to potential errors and financial consequences.
Broader picture
We must also not ignore the broader picture. The UK already faces a pensions crisis, with too many people saving too little for their retirement. Policy decisions should be encouraging pension saving, not creating additional hurdles or discouraging long-term contributions. Pensions should remain a vehicle for retirement income first and foremost — not be seen primarily as a tool for wealth transfer.
The industry has made sensible recommendations, from extending deadlines to ensuring death-in-service benefits are not inadvertently excluded. It is my hope that the government listens carefully and irons out these details before implementation. Otherwise, we risk undermining confidence in pensions at precisely the time when stability and encouragement are most needed.
At Blacktower, we continue to support our clients in navigating this evolving landscape. These proposed changes reinforce just how important professional advice has become — not just for investment and retirement planning, but also for estate planning and intergenerational wealth transfer.
Article by John Westwood, Group Chairman, Blacktower Financial Management.
