The treatment of unused pensions within the inheritance tax (IHT) framework is an issue that has garnered increasing attention in recent months. While both pensions and IHT are individually complex areas, the prospect of integrating them creates a significant challenge—one that risks introducing further complication, confusion, and unintended consequences for individuals, families, and professionals alike.
This paper outlines alternative solutions to the government’s proposal to include unused pension funds within the value of a person’s estate for IHT purposes. From the additional burden placed on personal representatives (PRs), many of whom are grieving family members, to the increased likelihood of errors, delays, and unintended tax liabilities, the issues span far beyond mere policy intent. Particularly concerning is the potential impact on individuals in vulnerable circumstances, many of whom may be forced to make rushed decisions under stress and within tight deadlines.
“The Government’s proposal to include unused pension funds within IHT risks creating unnecessary stress and delays for grieving families and causing long-term behavioural change among consumers that we don’t yet fully understand, particularly around pension contribution levels and withdrawals.
Instead, our research offers alternative approaches to consider, which would protect vulnerable people, support grieving families, and preserve confidence in pension saving. We show that you can still meet the Government’s fiscal and policy goals without creating additional issues and concerns for people at the worst possible time.
We hope this report prompts further discussion between industry and government to revisit the current approach and deliver a fairer outcome for all."
New research published today by The Investing and Saving Alliance (TISA) proposes alternative approaches to the Government’s proposed inheritance tax (IHT) reforms to pensions which is due to be introduced from April 2027. The alternative approaches aim to reduce the burden of dealing with complex rules and ensure grieving families avoid unnecessary delays while still achieving comparable fiscal outcomes for the Government. This will provide certainty for consumers, helping them save with confidence and with full awareness of their tax position on death. It is appropriate for pensions to remain outside the IHT regime and instead have their own tax system, as pension funds are partly funded through tax relief that is not available to other savings products.
Alternative Approaches to Taxing Unused Pension Wealth, produced by Oxford Economics, outlines two models that meet the Government’s revenue and policy objectives while avoiding the risk of delays, confusion, and added pressure on bereaved families, which TISA warns will occur under current proposals.
Govt urged to rethink IHT plans on pensions given ‘simpler’ alternatives – Pensions Age Magazine
Alternative policies can raise similar revenue as IHT on pensions – FTAdviser
‘Unworkable’ IHT/pension reform risks undermining Consumer Duty
‘IHT on pensions does not work at all’ – FTAdviser
Only tax inherited pensions worth more than £90k, Reeves urged
Alternatives to IHT on pensions proposed as industry pushes back
Chancellor told to rethink inheritance tax raid on pensions – The Times
