In the Budget last week, Chancellor Rachel Reeves announced that unused pension funds and death benefits will be subject to Inheritance Tax from April 2027, and further outlined changes to increase employer national insurance contributions

Commenting on the announcements, partner Beth Brown explained: “Despite various pension rumours surrounding the Budget, including reducing the tax-free cash allowance to £100,000, there were not many pension changes proposed in the Autumn Budget, which will be met with a sigh of relief from the industry given the complex and ever-changing nature of pensions.”

Shedding light on the Inheritance Tax changes, Beth stated: “Bringing unused pension funds and death benefits into the inheritance tax net was well trailed. Whether it raises much tax will depend on the behaviour of savers concerned about inheritance tax, who will be reviewing their estate planning. If inheritance tax is due, scheme administrators will be liable for reporting and paying it, which may be an unwelcome new burden for capacity challenged administrators. It seems clear that the key driver is to get in more money from pensions and more often. This change was probably expected by many but it will still be unwelcome given that many people have already made long-term plans on the basis that pensions are not subject to inheritance tax. This is likely to have a key impact on savers who are concerned about inheritance tax and will want to consider how the proposed change will impact their wider estate planning.”

Discussing the effect the Budget will have on employers, Beth added: “Employers will be paying more NI for employees, and paying NI for more employees. Although the increase in employer NI rate is “only” 1.2%, reducing the threshold brings a lot more earnings into scope. This may not “increase taxes on working people” but it is likely to put pressure on future pay increases and employer pension contributions. In addition, despite the crisis of under-saving and the call for employers to contribute more into pension schemes for their employees, it is hard to see that many employers will now want to do this given the extra costs being put on employers, not just through increased employer NICs but also through the additional costs expected to arise out of the Employment Rights Bill.”