Rachel Reeves' inheritance tax grab for unused retirement pots 'will be a total disaster for future pensions'

INHERITANCE tax changes set to be introduced by Rachel Reeves will be a disaster for future pensions, an expert warned.

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Former pensions minister Ros Altmann said the Chancellor must change her plans or risk leaving millions of people poorer in retirement.

Baroness Altmann said Ms Reeves “is bound to look at pensioners and pension spending as a potential source of extra revenue” in her next Budget, on November 26.

The Cabinet minister announced last year that unspent pension pots will be liable for inheritance tax for the first time, from April 2027.

The inheritance tax threshold of £325,000 will be frozen until 2030.

The changes are expected to raise an extra £2.3billion every year and double the number of grieving families liable to pay inheritance tax.

But financial advisers say many older people are now rushing to spend their pension pots, instead of saving money to pass on to family. A particular concern is many older people underestimate how long they will live, so risk running out of funds with years or decades ahead of them.

Baroness Altmann said: “The Government must urgently change its proposals for imposing inheritance tax on unused pension funds.

“The measure will be a total disaster for future pensions, with people rushing to withdraw as much as they can, as soon as they can, particularly up to the annual £50,270 higher rate income tax threshold.

“It means less money going into pensions and millions more poorer future pensioners.”

She said the Chancellor could instead introduce a special tax for unused pensions, at a significantly lower rate than the 40% charged on inheritance.