Ms Reeves has shown ‘a total lack of understanding of how defined contribution pensions work and the consequences of her actions’ – Nigel Howard
Below is a letter written by a pensioner to Chancellor Rachel Reeves detailing how her inheritance tax raid puts his children’s financial future at risk.
Dear Ms Reeves,
A soon-to-be 70-year-old pensioner recently wrote about how you have stolen his lifetime plans for a happy retirement.
I am writing to explain how you are stealing and putting at risk my children’s financial future and security and many of their age, at a time when potentially there will be no state support.
I echo and support the earlier writer’s thoughts, comments, and the potential outcomes of your inheritance tax raid on pension funds. This is a decision that reveals your total lack of awareness, knowledge, and understanding of how defined contribution pensions work and the consequences of your actions on future generations and taxpayers.
My wife and I are in our early 60s and nearly retired. Neither of us went to university. We left school at 18 and 16, and soon after our marriage we created and ran a successful local business for over 20 years. We employed many local people and paid our way in all forms of taxation over our working lives.
We only had our efforts to provide for our retirement. No public sector, taxpayer-funded pension support existed, so we were wise and sensible. We strived to contribute our maximum annual pension allowances when we could and invested wisely. We benefited from tax relief, but the amount we received pales into insignificance compared to the amount we have paid out in tax over the years.
We do not take for granted our current financial situation and we are aware of the good fortune we have received from the decades that we have lived through. However, equally, it reflects our hard work, commitment, dedication, sacrifices, and long hours.
I have many of my tax payment receipts. Between 2007 and 2024, not even the full period of our business and working lifetimes, we paid over £1,722,650 in personal and company taxes. An average of £100,000 per year before employer National Insurance costs, VAT, business sale taxes, and other indirect taxes.
You have already received your fair and reasonable share from us.
From solely our efforts we now jointly hold around £2.8m in defined contribution pension funds. With a fair investment wind, these could be worth around £3m on April 5 2027 (when your reforms kick in). Let us assume that they will be.
We have no retirement income other than our state pensions when they fall due.
We have planned for our children to inherit some of our pension funds. They made sacrifices so we could run and maintain our business. This is the payback for all our long hours when we were not home to put them to bed and read a story. For the missed school events and matches we never got to see them participate in. It’s a thank you to our youngest child for being so good from the age of one week old, to sleep in his car seat beneath my wife’s desk so she could make sure the staff got paid on time.
Any residue of our pension funds after we die is only fair recompense to them. Yet you, Chancellor, are wrenching this away from them.
If we both die on or before April 5 2027, you will receive nothing from our pension funds, but if we both die 24 hours later, you would receive inheritance tax of £1.2m from our pension funds alone for doing nothing. What right do you have to take this from our family after we have spent 40 years building it up?
You would receive more than our two children who could receive £900,000 each.
If values, tax rates, and allowances stay the same, you would receive in inheritance tax on just our pension funds alone, an amount nearly equivalent to the value of our home, upon which you could receive a further £340,000 of inheritance tax.
Your total inheritance tax take on our combined estates on April 6 2027 could be £2.1m for doing nothing. You will collect more inheritance tax from our pension funds than from the non-pension balance of our estates.
We have set out to provide for ourselves and our descendants, seek not to burden the state, and do our bit for the economy.
We have factored in the potential cost of care, which could be £80,000 to £100,000 a year, when we are in our old age. We doubt that the NHS nor state social care will be there for us.
Our two children do not and will not have the same financial opportunities as us. They are growing up in an economy with £9 trillion of UK financial liabilities and public sector pension promises. This is while the generation that is to pay these amounts decreases in number, seems frightened by the simple concept of work, and is prone to going sick at the drop of a hat. Yet you do nothing about this.
I doubt that our children will ever be able to accumulate what we have built up in pension funds. So, it is up to us to support them.
You have now put ours and their retirement at considerable risk. A sum of £900,000 could produce a gross annual income of around £27,000. This does not even meet the required income of £33,300 for a moderate retirement living standard for a couple living in London and the South East, as defined by the Pensions and Lifetime Savings Association.
If the generations behind us cannot provide for themselves, who will provide for them? The state will not be able to – I doubt if our children will be receiving a state pension at all.
By subjecting pension funds to inheritance tax, many couples will lose the residential nil-rate band allowance, thus making their estates liable to an additional £140,000 of inheritance tax.
Unmarried couples will face inheritance tax tax bills that they do not face today. Some survivors may have to sell their homes to pay taxes that will fall due.
Your inheritance tax grab on pensions will leave many widows and widowers financially destitute when they are denied access to funds kept away from them until probate is granted and inheritance tax paid.
The despicable and unacceptable ineptitude of your public departments, including the probate office and HMRC, will contribute to the pain.
As a semi-retired financial adviser, many will seek a solution from me. I am happy to provide one.
I invite you to meet and sit down with me and find a way forward.
Chancellor, please reconsider your actions before you are directly responsible for even more suffering and damage than you have caused so far.
The writer was an independent financial adviser for 40 years. He is now semi-retired.
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