Overly generous tax treatment of pension pots at death needs to end, says IFS

Pensions are treated more favourably by the tax system as a vehicle for bequests than they are as a retirement income vehicle. The sooner this anomaly is addressed the better says the Institute for Fiscal Studies (IFS).

In a new report Death and Taxes and Pensions funded by the abrdn Financial Fairness Trust IFS researchers set out proposals that would make the tax treatment of pensions at death fairer and more economically efficient.

The report recommends that pension pots should be included in the value of estates at death for the purposes of inheritance tax. Currently any funds that remain in a pension at death (at any age) are not subject to inheritance tax. As such there is a substantial incentive for those who can to use non-pension assets to fund their retirement while preserving their pensions for bequests....