New inheritance tax on unspent pensions sparks backlash from 2027
New government plans to levy inheritance tax on unspent pensions from April 2027 have sparked sharp criticism. Pensions campaigner Ros Altmann warns the move will push savers to withdraw funds early and create financial chaos for bereaved families. Legal and tax experts have also raised concerns about the practical impact of the proposals.
Chancellor Rachel Reeves first announced the policy at last year’s Budget. Under the rules, unused pension funds will usually form part of a person’s taxable estate from 2027. While personal representatives won’t directly pay the tax, beneficiaries or the pension fund itself will be liable—depending on jurisdiction and how the assets are classified.
Baroness Altmann argues the changes will discourage long-term pension saving. She warns that mid-earners may drain their pots early to avoid inheritance tax, even if it means paying income tax instead. The campaigner also highlights the risk of beneficiaries facing 8% interest on late payments, as they must settle the bill within six months.
Other peers in the House of Lords share her concerns. They fear the plans will harm bereaved families, reduce confidence in pensions, and increase pensioner poverty. Altmann adds that the administrative burden on executors will be excessive, with many reluctant to take on the role once they understand the new responsibilities.
Financial Secretary to the Treasury, Lord Livermore, defended the policy. He stated that the government still encourages pension saving and that most unused funds will naturally fall into the taxable estate from 2027.
The proposed tax changes will take effect in spring 2027, affecting how pensions are passed on after death. Executors and beneficiaries will face tighter deadlines and potential penalties, while savers may reconsider how they manage retirement funds. Critics argue the policy could weaken trust in pension schemes and leave families financially exposed.
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