Rachel Reeves announced in her October Budget that pension pots would no longer be exempt from inheritance tax from April 2027.
State pensioners rush to withdraw cash over ‘draconian’ new HMRC rule
State pensioners are rushing to pull billions from pension pots to escape a potential tax raid from the Labour Party government. Chancellor Rachel Reeves announced in her October Budget that pension pots would no longer be exempt from inheritance tax from April 2027.
Middle-class pensioners risk a retirement “disaster” after a record £5bn was pulled fro pots in the wake of the move. 672,000 retirees pulled £5bn from their pots in the first three months of this year.
Baroness Altmann, a former Conservative Party pensions minister, urged the Chancellor to reverse the policy. She warned she was creating a “pensioner poverty time bomb”.
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“It’s a disaster,” Lady Altmann said. Sheslammed that the “draconian” way the policy was introduced. Lady Altmann said: “This policy could end up being as damaging to workplace pensions as Gordon Brown’s tax rate was for DB [defined benefit] pensions.
“I honestly think this is an existential threat to the long-term survival of our DC [defined contribution] pensions, because there’s a clear incentive to take the money out as soon as you possibly can.”
Lady Altmann said: “This IHT [inheritance tax] imposition will ensure that more and more people – especially those who don’t have massive amounts of money – will just say, ‘Why on earth would I want to lose two thirds of my pension to the taxman? I’ll just take it out as soon as I can.’
“Those who build up, say, between £200,000 and £300,000 over their working life are now in danger of having a real financial incentive not to keep money in their pensions for their later life and then end up in poverty.”
Guy Opperman, another former pensions minister, said: “Pensions are taking a big hit from the Government’s actions.
“The consequences of this policy are clear: people will save less for their pension and will withdraw more. This will also affect the ability to pass money on. There is time for the Government to think again and they should. It is very short-term.”
An HM Treasury spokesman said: “We continue to incentivise pensions savings for their intended purpose – of funding retirement instead of them being openly used as a vehicle to transfer wealth – and more than 90pc of estates each year will continue to pay no inheritance tax after these and other changes.”