The removal of inheritance tax exemptions from unused pension funds could deal a disastrous blow to the way silvers plan their retirement finances, according to an expert. The likely impact of the change, due to take effect in 2027, is more early withdrawals, lower contributions and less pension investment, warns Baroness Ros Altmann. “It will also mean fewer people in their 60s investing for the longer term in assets that can boost British growth, such as infrastructure, real estate or small companies, which is supposedly a key Government aim”, says the former pensions minister. There is little sympathy for people who have well over £1m in their pension funds, sh says, but those will not be the biggest losers. “People around the middle 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. As most people normally underestimate their life expectancy, the new regime will mean pension-holders will worry about losing the majority of their hard-earned pension fund to the taxman. The rational response, therefore, seems taking as much as possible quickly, especially when it can be at a 20% tax rate.” The proposed move would unravel the sensible behavioural incentives of the pension freedoms introduced just ten years ago which helped people take control of their own pension. “It was suddenly safe to keep money in your fund for later life, continuing to invest for the long-term and spending ISAs or other savings first, while keeping funds for your 80s and 90s, which is surely what pensions are for.”
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