Question to the HM Treasury:

To ask His Majesty's Government what analysis they have carried out to quantify the loss of inherited benefits from pension schemes, in terms of reduced pension income and lower life insurance support, as a result of the imposition of inheritance tax on pensions at death.

Most unused pension funds and death benefits payable from a pension will form part of a person’s estate for inheritance tax purposes from 6 April 2027. This removes distortions resulting from changes that have been made to pensions tax policy over the last decade, which have led to pensions being openly used and marketed as a tax planning vehicle to transfer wealth, rather than as a way to fund retirement.

Estates will continue to benefit from the normal nil-rate bands, reliefs, and exemptions available. For example, the nil-rate bands mean an estate can pass on up to £1 million with no inheritance tax liability and the general rules mean any transfers, including the payment of death benefits, to a spouse or civil partner are fully exempt from inheritance tax. More than 90 per cent of UK estates will continue to have no inheritance tax liability in 2029-30 following these changes and the reforms will only affect a minority of those with inheritable pension wealth. Around 213,000 estates are expected to have inheritable pension wealth in 2027-28, with only 10,500 estates becoming liable to pay inheritance tax as a result of these reforms, and around 38,500 paying more than would previously have been the case.

The Government is continuing to incentivise pensions for their intended purpose of funding retirement.