‘Ending tax-free pensions lump sum could fund IHT abolition’ IEA suggests

The head of the Institute of Economic Affairs (IEA) has suggested that scrapping the current tax-free pensions lump sum could be a way for the government to fund the abolition of inheritance tax (IHT).

Writing in a column for The Times, IEA director general Mark Littlewood outlined his thoughts on the UK’s “complex” taxation system ahead of a likely General Election.

He said: “There is very little to justify the tax-free lump sum people can withdraw from their pension pot. Putting an end to that carve out could, for example, go alongside reducing or eliminating inheritance tax.

“In very broad terms, the burdens and benefits are both felt by the same demographic. Simplifying the tax system should involve taking rather less with one hand, while giving out less with the other.”

Chancellor Sajid Javid hinted just last week that inheritance reform could be on the current government’s agenda, saying there was a “real issue” with the system and it was “something that’s on my mind”.

But Littlewood’s latest comments were not welcomed by all corners of the pensions industry. AJ Bell senior analyst Tom Selby said that axing the pension freedom introduced in 2015 – which means that over-55s can now access 25% of their final pension pot tax-free – was a “terrible idea”.

“Those who had saved money on the assumption they would get 25% of their final fund tax-free would justifiably feel aggrieved at an essentially retrospective tax grab. Even introducing a cap on tax-free cash would create a severe cliff-edge, so it is likely complex transitional measures would be needed,” he explained.

“The floating of half-baked ideas such as this is exactly the reason the government needs to make a genuine attempt at bringing some certainty into pension tax policy. Savers need to feel confident that the pension tax rules won’t be changed every five minutes, which feels reasonable given we are asking them to lock their money away for decades.”

    Share Story:

Recent Stories


Deep Neural Networks for FX Prediction
Adam Cadle speaks to Richard Turner Head of Research and Mike Emambakhsh, Ph.D. Senior Research Scientist at Mesirow Currency Management about their work with Machine Learning, specifically Deep neural networks for FX prediction.

Mortgage Insider Podcast Series 2 Episode 10: Building Resilience with Peter Brodnicki
We join Peter Brodnicki, CEO and co-founder of the Mortgage Advice Bureau, to reflect on the value of resilience in business. He tells us about lessons learned during his career, the challenges he’s faced since starting MAB 20 years ago and why it’s important to take risks and disrupt your own business.

Will open banking revolutionise the lending industry
Adam Cadle speaks to Jack Tenwick, Head of UK Sales, Yolt Technology Services, about how to get the most out of your lending business and the role of open banking

FREE E-NEWS SIGN UP

Subscribe to our newsletter to receive breaking news and other industry announcements by email.

  Please tick here to confirm you are happy to receive third party promotions from carefully selected partners.