IHT change tops list of pension investor concerns, study finds

A change to inheritance tax (IHT) treatment of pensions is topping the list of concerns among pension investors ahead of the Chancellor’s Autumn Budget next week.

A study by interactive investor quizzed pension investors about the tax changes that would most concern them if they were implemented, with four in 10 (40%) suggesting that making a pension subject to IHT on death is their biggest worry.

The poll, based on responses from 1,163 investors, revealed the next most worrying potential change would be reducing or limiting the amount of tax-free cash available to people when they access their pension for the first time, which would concern one in four (25%) pension investors.
A reduction in the lifetime allowance would cause the most concern for 16% of respondents, while reducing tax relief on pension contributions would trouble 15%. Just 4% said they would be concerned by a reduction in the amount you can contribute.

interactive investor head of pensions and savings, Becky O’Connor, said that the allowances and reliefs that come with pensions make them the “most attractive” way to invest for retirement.

“If the Chancellor feels tempted to tap that vein, he risks people giving up work without enough in their pensions for a decent income because they are worried about being hit with charges, or because pensions begin to lose their attractiveness relative to other ways to invest for the long-term,” O’Connor said.

“The ability to pass on what’s left in a defined contribution pot tax-free is a key benefit of this type of pension and a kind of consolation for the loss of generous old-style defined benefit schemes that offer guaranteed income for life, but in general no ability to pass anything on to relatives.

“Reducing the amount of tax-free cash available would affect everyone with a pension and would therefore be deeply unpopular and the effects widely felt, although could be justified from the point of view of dissuading people from taking out too much, too soon from their pension.”

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