I was clearing out my garage yet again the other week when I came across a pile of vinyl records that I hadn’t played since the 1990s. One of them was a ‘shoegazing’ era Boo Radleys LP, with songs on it that you can’t find on Spotify. I knew my eldest son would like it, as he’d recently completed a project for his music college course about Rough Trade, the band’s record label at the time.
In preparation for an essay and groundwork for my son’s own attempt at creating a Rough Trade song, we’d spent hours listening to all the bands that had signed to the label, including some of the songs on my old record.
I found it deeply satisfying to pass ‘Learning to Walk’ onto Liam, given that he already knew the songs. I think I’d bought it through mail order via an ad in the back of the New Musical Express. There was no Amazon back then, of course, and it was a bit niche for my local record shops, especially as most had stopped stocking vinyl by then.
My other kids also acquired things that I’d found in the depths of the garage. Ryan had to make do with his brother’s old Star Wars collectibles, but he was happy with that. Chloe got my 9ct gold ‘keeper’ ring that my auntie had given to me when I was her age. It used to be my favourite ring – its raised orb pattern reminded me of the cobbled pavement outside my gran’s house, like a proverbial London street paved with gold. But then my mum treated me to my first ‘grown up’ diamond ring and I went off plain gold after that.
My point is that passing things that mean something to you onto your kids is just as much a part of parenthood as feeding, clothing and spending time with them. It’s a way of establishing a connection with them that links the future to the past and underlines the fact that they are a part of you. I love the idea that my kids are getting enjoyment from the same things I did, potentially even after I’m gone.
It’s the same with wealth. I understand why people want to be able to pass unused pension money onto their children or other members of the younger generation without the government making it difficult for them. I’m referring, of course, to the planned changes to IHT, with pensions becoming part of a deceased person’s estate from 2027.
Natalie Butt, director, private clients at Crowe UK told me that under current rules, most pension funds bypass the estate due to the discretionary nature of payments by pension schemes. “But the new regulations will eliminate this distinction, meaning all benefits – regardless of whether they were previously discretionary or non-discretionary – will now count towards the estate’s value for Inheritance tax calculations.”
We recently heard that IHT receipts have hit record new highs, with £7.6bn collected by the Treasury between April 2024 to February 2025. That is £800m higher than the same period last year – and, we are told, it’s going to be even higher going forward.
But if you’ve worked hard for your money – potentially sacrificing time spent on other areas of your life – paid your taxes in other areas and been prudent in saving for retirement, why should the taxman potentially get a look in from money left in your pension when you die, along with everything else?
It’s an emotive subject and it always has been. In my early years at Money Marketing, I remember feeling outraged when learning that if you died early after taking out an annuity, that money would be lost to you and your family.
I know there are options that annuitants can set up like joint life, guaranteed periods and value protection, so payments don’t just stop when you die. But it took a while for me get my head around the concept of ‘mortality cross subsidy’ and whether I thought it was fair.
I’ve written previously in a Weekend Essay about how I can always see both sides of an issue and how that makes it difficult for me to come down on one side or the other. I’ve experienced this when mulling over those 2027 IHT/pension changes.
As I’ve said, it doesn’t seem fair. But on the other hand, I’m not comfortable with wealthy people using pensions just to save tax, where they don’t need their pension pots to fund their retirement.
For me, the purpose of pensions should be to save for retirement. If you use it for other things, the message about its primary purpose gets lost. That was always the problem I had with the lifetime Isa – I could see how people would use it to buy their first home, but I didn’t think the retirement savings side of it worked alongside that.
I know the history of the tax-efficiency side of pensions – how people needed an incentive to put money away and so called ‘free money’ from the government and employers through tax relief and employer contributions respectively is the way we’ve gone about it. But that underlines my point – the tax relief should be there to encourage retirement saving, not for people to pass on surplus wealth to loved ones.
I accept that in the defined contributions world where more risk is borne by pension investors, there does need to be some ‘perks’ to balance that out. So, you could probably say that a pension not being part of a deceased’s estate, as it stands under the current rules, is one of those.
But as a young financial journalist, I was always hearing that saying in the investment world how we shouldn’t ‘let the tax tail wag the dog’. If people are only investing in pensions to save tax and not to save for retirement, that doesn’t seem right to me. Surely there are plenty of other options for them as we count down towards 2027?
