interactive investor comments on proposed tax changes on inherited pensions.
Alice Guy, Head of Pensions and Savings at interactive investor, comments on proposed tax changes on inherited pensions.
“The government needs to think carefully before making significant changes to the tax rules on pensions, which will disproportionately affect those whose partner or parent dies at a relatively young age.
“The proposed changes could have a huge impact on families, including children who lose their parents young and could disproportionately affect women, who often rely on their partner’s pension income in retirement.
“Under potential changes, if a young woman with a family dies, her husband would no longer be able to take a tax-free income payment from her pension each month to help with childcare costs. Instead, he has to take the pension as a lump sum to save tax, bringing that money into his estate for inheritance tax. If the husband dies later, the pension lump sum is now in the husband’s estate and could trigger an inheritance tax charge. If the money was still in a pension, in a tax-free environment, it could be passed on to the kids tax-free.
“The current rules are a lifeline to people who lose their partner or parent at a young age. They are currently able to inherit their pension, leave it invested and draw an income when needed without having to worry about paying extra tax.
“Forcing them to make a life-changing decisions or draw a potentially significant lump sum when they have just lost their partner could be hugely detrimental to their long-term financial well-being, as well as potentially triggering a bigger inheritance tax bill in the future.
“Women often struggle to save private pension wealth as they are more likely to take time out from the workplace or take a part-time role to care for loved ones. They are more likely to be living in poverty in retirement and rely on their partner’s pension savings to boost their state pension income.
“It’s important that the government consults more widely on pension changes, which could have a life-changing impact on those unlucky enough to be affected.”
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