Britons are at risk of paying a “triple tax” on their pension savings due to recently introduced policy changes from the new Labour Government.
Chancellor Rachel Reeves unveiled multiple fiscal reforms in her Autumn Budget last month, including changes to inheritance tax (IHT) and National Insurance.
A notable reform was her decision to make pension pots liable to pay IHT which means households could be slapped with a 40 per cent charge.
One in 10 families at risk of paying the tax, which is levied on estates valued above £325,000, due to the impact of fiscal drag.
This is the term used to describe when people find themselves paying more tax due to incomes rising over a period when tax-free thresholds are froezen.
In 2023, around five per cent of estates based in the UK were hit by inheritance tax which is often referred to as the “most hated tax in Britain”.
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Analysts are warning about a “triple tax” on pension savings
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Furthermore, some individuals will get slapped with a double tax on their retirement savings.
When a retirees over the age of 75 passes away, their beneficiaries will have to pay income tax on any withdrawals.
This is because if a retiree dies over the age of 75, their beneficiaries must pay income tax on the withdrawals.
However, a smaller group of pensioners risk a triple tax on their pensions, after already paying charges of 25 per cent or even up to 55 per cent.
Previously, workers were able save up to £1.07million in a pension without triggering a tax charge under the lifetime allowance but this was axed by the last Government in April.
If someone went over this threshold, they were slapped with an extra tax charge on the excess worth 55 per cent if they took it as a limp sum, or 25 per cent if taken via drawdown.
Over 11,000 people paid the lifetime allowance charge during the 2021-22 tax year, according to HM Revenue and Customs (HMRC) figures.
Jon Greer, the head of retirement specialists at, Quilter, share: “Whenever there are changes to pension policy, there will always be winners and losers.
Retirees at at risk of being hit financially under a pension tax raid
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“The abolition of the lifetime allowance will have saved those who faced charges significant sums, while many who suffered those same charges in previous years effectively ‘lost out’ as they might not have under the current rules.”
Kate Smith, a corporate trustee at Aegon, added: “We’re having pensions changed constantly, with big changes introduced every other year.
“We had pension freedoms in 2015 followed by lifetime allowance changes and then its removal in 2024. There will be a small group of people affected by this – who have been impacted by more than one regime.
“Some savers got lifetime allowance protection but we know from official figures that not everyone did. The Government needs to think about the impact that all these changes have on behaviour.”
