When I first heard that the Government was bringing pensions into the scope of inheritance tax (IHT), like everyone else, I thought it sounded pretty outrageous.
How could the Government have allowed several generations to plan their finances around one set of rules, only to drastically change them at short notice, undoing over a decade of careful tax planning?
But even as I thought about it, I realised that was exactly the problem. Pensions had become the centre of estate planning – a vehicle for passing on assets tax-free. But that isn’t what pensions were intended for.
Before 2015, you could typically take 25 per cent of your defined contribution (DC) pension pot, and rules heavily steered savers toward spending the rest on buying an annuity – a product that pays you a guaranteed income for the rest of your life.
When pension freedoms kicked in in 2015, meaning you could access your DC pension however you liked, they increasingly began to be viewed as a way to help estate planning rather than retirement saving.
