Question to the HM Treasury:

To ask His Majesty's Government what estimate they have made of the impact that imposing inheritance tax on unused pensions will have on (1) the number of people aged 50–69 who withdraw money from their pension funds, (2) the adequacy of pension provision for younger people, and (3) the investment policy choices made by holders of defined contribution pensions and draw-down funds in later life.

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. These reforms also address inconsistencies in the inheritance tax treatment of different types of pensions.

The Government will continue to incentivise pension savings for their intended purpose of funding retirement, with ongoing tax reliefs on both contributions into pensions and on the growth of funds held within a pension scheme. Pensions continue to benefit from very significant tax benefits, with gross income tax and National Insurance contributions relief costing £78.2 billion in 2023-24.

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 2030-31 following these changes and the reforms will only affect a minority of those with inheritable pension wealth.