Autumn Budget 2024: Pensions subject to Inheritance Tax from April 2027 – but most still won't pay

CaptainWales

NedS said:

I get your point, but with respect to pensions (the change being discussed herein), they are not designed as vehicles to pass on wealth - they are to provide for YOUR retirement. If you are concerned you may breech the IHT threshold because of a pension, buy an annuity and the issue is solved.

The way I see it now, is why should I bother continue saving most of my income in to a pension, buy an annuity and risk living long enough to have got back what I put into my pension pot? I would probably be better off not paying into a pension, give money away to friends and family (not spouse or children/grandchildren) now, live 7 years so gifts exempt from IHT, and then let the state pay pick up the tab for my retirement. 

eskbanker

CaptainWales said:

NedS said:

I get your point, but with respect to pensions (the change being discussed herein), they are not designed as vehicles to pass on wealth - they are to provide for YOUR retirement. If you are concerned you may breech the IHT threshold because of a pension, buy an annuity and the issue is solved.

The way I see it now, is why should I bother continue saving most of my income in to a pension, buy an annuity and risk living long enough to have got back what I put into my pension pot? I would probably be better off not paying into a pension, give money away to friends and family (not spouse or children/grandchildren) now, live 7 years so gifts exempt from IHT, and then let the state pay pick up the tab for my retirement. 

Sounds like cutting your nose off to spite your face!  But if you're happy to live solely off a state pension, after enriching others, then good luck to you....

CaptainWales

eskbanker said:

Sounds like cutting your nose off to spite your face!  But if you're happy to live solely off a state pension, after enriching others, then good luck to you....

I agree that would be one way of looking at it - the other would be I would be doing what I want with my own hard earned cash.

eskbanker

CaptainWales said:

eskbanker said:

Sounds like cutting your nose off to spite your face!  But if you're happy to live solely off a state pension, after enriching others, then good luck to you....

I agree that would be one way of looking at it - the other would be I would be doing what I want with my own hard earned cash.

Obviously anyone can do what they like with their own money but voluntarily giving it all away to the extent of living off a minimal income, primarily to make some sort of political point, is, let's say, counter-intuitive....

NedS

CaptainWales said:

NedS said:

I get your point, but with respect to pensions (the change being discussed herein), they are not designed as vehicles to pass on wealth - they are to provide for YOUR retirement. If you are concerned you may breech the IHT threshold because of a pension, buy an annuity and the issue is solved.

The way I see it now, is why should I bother continue saving most of my income in to a pension, buy an annuity and risk living long enough to have got back what I put into my pension pot? I would probably be better off not paying into a pension, give money away to friends and family (not spouse or children/grandchildren) now, live 7 years so gifts exempt from IHT, and then let the state pay pick up the tab for my retirement. 

If you already have sufficient pension assets to adequately provide for your retirement, then I agree that it may make more sense to spend that money now rather than continue to save what you are unlikely to ever need. That said, most people are simply not in that position. I have planned for a 40+ year retirement, assuming I may live well into my nineties, given both my parents are still alive and well into their nineties (so an annuity would have made a lot of sense to them for longevity insurance).

If you are talking about allowing the State to pick up the tab in retirement, then you clearly have not saved enough, and as such are unlikely to have large amounts left over such that changes to inheritance tax should be a concern to you?

Andy_L

CaptainWales said:

NedS said:

I get your point, but with respect to pensions (the change being discussed herein), they are not designed as vehicles to pass on wealth - they are to provide for YOUR retirement. If you are concerned you may breech the IHT threshold because of a pension, buy an annuity and the issue is solved.

The way I see it now, is why should I bother continue saving most of my income in to a pension, buy an annuity and risk living long enough to have got back what I put into my pension pot? I would probably be better off not paying into a pension, give money away to friends and family (not spouse or children/grandchildren) now, live 7 years so gifts exempt from IHT, and then let the state pay pick up the tab for my retirement. 

why do you need/want to buy an annuity?

LHW99

While packing money into pensions because they are IHT free may not have been the original intention when such things were first considered (50, 60 ...years ago), people with only a DC pension (significant majority as time goes on probably) have to decide - how long does this fund have to last? Do I need salary x 25, x30 or what?

IMHO a better option would have just been to ensure pensions are taxed at marginal rate by whoever gets to use them. Pass the remainder on IHT free if not all used, but only allow use for income (not full withdrawal), no TFC if an inherited fund, and no withdrawals until beneficiaries' SPA.

That should gradually ensure a greater % of the population gets taken out of pension credit calculations, and reduce the likelihood that beneficiaries will be able to extract money totally tax-free.

MeteredOut

CaptainWales said:

NedS said:

I get your point, but with respect to pensions (the change being discussed herein), they are not designed as vehicles to pass on wealth - they are to provide for YOUR retirement. If you are concerned you may breech the IHT threshold because of a pension, buy an annuity and the issue is solved.

The way I see it now, is why should I bother continue saving most of my income in to a pension, buy an annuity and risk living long enough to have got back what I put into my pension pot? I would probably be better off not paying into a pension, give money away to friends and family (not spouse or children/grandchildren) now, live 7 years so gifts exempt from IHT, and then let the state pay pick up the tab for my retirement. 

That would be a great diary to post to these pages. Please let us know when its started

Pat38493

LHW99 said:

While packing money into pensions because they are IHT free may not have been the original intention when such things were first considered (50, 60 ...years ago), people with only a DC pension (significant majority as time goes on probably) have to decide - how long does this fund have to last? Do I need salary x 25, x30 or what?

IMHO a better option would have just been to ensure pensions are taxed at marginal rate by whoever gets to use them. Pass the remainder on IHT free if not all used, but only allow use for income (not full withdrawal), no TFC if an inherited fund, and no withdrawals until beneficiaries' SPA.

That should gradually ensure a greater % of the population gets taken out of pension credit calculations, and reduce the likelihood that beneficiaries will be able to extract money totally tax-free.

I was also pretty surprised that they didn’t make pensions at death below 75 subject to marginal rate income tax.

I haven’t seen any of those involved asked about this specifically, but I wonder if this is actually fully intentional.  I guess part of the drive here is to encourage people to use their pensions to support themselves and spend the money whilst still alive.  Or to put it less kindly, to force people to pay the tax earlier and in chunks over time.

Keeping the under 75 exemption could be framed along the lines that most people should be able to deplete, or at least significantly reduce, their pension pot by the time they are 75 if they want to avoid the risk of IHT through the pension part of this new process, or even double taxation if the pension is not going to a spouse - therefore it’s a choice you can make yourself.  If you are unlucky and die before 75, you are not double taxed.

Fundamentally I suspect governments would prefer that you spend the money and pay the taxes (or pass the money on) earlier rather than end up paying IHT as IHT is probably pretty expensive to administer on all sides.

DRS1

Andy_L said:

CSL0183 said:

What about death in service life assurance benefits? 

Everyone paying into a DC scheme I suspect will have some sort of death in service life assurance policy attached? 

My own pays a 5x multiple of my pensionable salary plus the contents of my pension pot at the time of my death. 

I am 40yrs old and still have a long way to retirement but my current pension pot plus 5 x my salary is worth around £700k today, right now. (£80k pensionable salary x 5 = £400k + £300k in pension pot) 

I appreciate I am a fairly high earner but surely it wouldn’t take much for anyone on a decent salary to breach £325k if death in service benefits are also included in the maths for IHT?

Someone on a more average £40-£50k pa at a reasonably young age would break this £325k no problem with (5x salary) life assurance benefits?

Or am I misunderstanding death benefits?

AIUI benefits like that are outside the estate as they are discretionary payments by the scheme trustees.

Maybe so but under the changes they are going to come into the scope of IHT (at least that is my reading - there is some language at the end of the Consultation Document talking about insurance policies which means I may be wrong)