Rachel Reeves is making a terrible plan for your pension, You Won’t Believe What’s

Proposals from the Government to tax unspent pension funds after death could have a devastating impact. Currently, any money left in your pension pot can be passed to your loved ones without paying the 40% inheritance tax (IHT).

Under the new rules, however, if you don’t have a spouse or civil partner, your loved ones would lose at least 40% to IHT. If you’re over 75, they’d also need to pay income tax on withdrawals. This could mean over half, or even two-thirds, of your pension could go to taxes, making it feel more like confiscation than fair taxation.

The changes may encourage people to withdraw their pension savings early. For example, those earning less than £50,270 a year could start withdrawing thousands in their late 50s and only pay 20% income tax. Many average earners could start using their pensions even before retiring, potentially running out of funds by their late 70s.

These proposals could harm trust in pensions, leading to increased poverty among the elderly. They also undermine the Government’s goal of encouraging pension fund investment in long-term projects like UK infrastructure, small businesses, and social housing—key areas needed for economic growth.

Fewer people in their 50s are likely to invest in long-term assets if they fear heavy taxes or losing their savings. This could negatively affect pension growth and long-term returns.



Another major issue is the impact on death-in-service benefits, which would now be subject to IHT. This means loved ones would only receive around 60% of the expected amount. Such changes would disrupt careful financial planning for many families.

The proposed rules would also create delays and additional costs for pension providers, who must calculate how much IHT is owed before releasing funds. Currently, these funds are paid out quickly, but the new system could lead to months or even years of delays for grieving families.



If the Government wants to tax unspent pensions to recover some of the tax relief provided, a fairer and simpler option would be a flat 20% tax on remaining funds at death. This approach would avoid delays, simplify administration, reduce early withdrawals, encourage long-term investments, and maintain public confidence in pensions. It could also help ensure better incomes for pensioners and greater financial security in retirement.