01 AUG 2025

Technical Newsletter - August 2025

Issue 10 - August 2025

 

This edition contains information regarding pensions and inheritance tax, pre-budget speculation, the Government’s advice/boundary review and a reminder of the dangerous prevalence of scams.

 

Pensions and inheritance tax – no U-turn in sight

On 21 July, the Government announced that it was pushing ahead with its plans to apply inheritance tax to unused pensions on death. This is the outcome of a Government consultation on the policy, first announced by chancellor Rachel Reeves in the 2024 Autumn Budget.

It had been hoped in some quarters that the Government would backtrack or at least water down its proposals, but the plans are (at this stage) largely proceeding unchanged from those announced last October. The only slight concession is that lump sum death-in-service benefits and joint life annuities will be out of scope for IHT.

The Government also changed its plan for pension administrators to be responsible for the calculation and payment of any IHT due from a pension fund on death. This will now fall on the personal representatives, which will be a very arduous task for grieving individuals.

The result is the prospect of potentially heinous tax rates on pension funds which face being taxed twice, once for inheritance tax and once for income tax in the hands of beneficiaries.

Clearly the Government has to raise revenue to pay for its commitments to increasing investment and public spending over the course of this parliament, but given that many pension funds will find their way into the hands of “working people”, these plans are proving controversial. We can only hope (with the Government currently polling very poorly) that some sort of last-minute alterations take place before April 2027, but currently that seems unlikely.

 

What next for pensions in the autumn budget?

Although this newsletter is being published in August, a time when parliament enjoys its long recess, the next budget will soon be upon us. The question for the pension industry is whether further changes will be made to the pension relief and benefit system, following the inheritance tax proposals announced in the October 2024 budget.

The Government is being squeezed on both sides with services and infrastructure desperately needing investment, but on the other hand an increasing deficit, with Government debt now at 100% of GDP. Adding fuel to the fire is the cost of servicing this debt.

For many years, the Government enjoyed almost free borrowing thanks to historically low interest rates, but those days are long gone. The cost of servicing our debt has gone from 1.2% to 3.7% since 2020-21, or in real terms, the OBR reported that it was expected to total £111.2 billion in 2025-26. Economic growth was 0.7% in Q1 2025, but this might have been driven by an export boom before the Trump tariffs kicked in.

Many commentators feel that the UK is sliding towards the abyss of a financial crisis a year or so down the line.

Pensions seem to be in-line for measures aimed at boosting tax revenues. It is understood the deputy prime minster Angela Rayner is keen for the lifetime allowance to be reintroduced. Could a cap be placed on the pension commencement lump sum? We really don’t know, but with a potential retirement crisis looming due to woefully inadequate pension provision across the UK in general, further tax grabs on people’s pensions would surely not be prudent?

Advisers are likely to play a crucial role in the lead up to a budget so rife with speculation, helping clients navigate uncertainty and avoid ill-advised pre-emptive actions based guesswork. Last year’s flurry of tax free cash withdrawals, which HMRC (much later) advised could not be unwound, being a perfect cautionary case in point.

 

Advice/Guidance Boundary Reviews

The Government recently provided details of the next stage of its Advice Boundary Review. It’s a response to a growing concern that most consumers in the UK are not getting the financial help they need. In December 2024, the FCA issued a consultation paper outlining at a high level its vision of a new type of targeted pension support. There is acknowledgement of the current gap between bespoke advice and the general guidance support available.

This was followed by a second consultation paper in June this year giving details of how the FCA aims to in introduce a new regulatory framework for targeted support aimed at non advised clients and simplified advice.

The FCA’s Financial Lives Survey in 2024 found that 1 in 10 people in the UK have no savings and another 21% have less than £1,000 to draw on in an emergency. So from this perspective the need for education and professional support from qualified individuals and firms has never been greater.

Whilst industry broadly welcomes the initiative there is concern at how potential advice claims down the line could be treated, given that the Financial Ombudsman Service has in recent years had a tendency to view complaints of poor advice or alleged negligence on the part of pension providers through the lens of the current regulatory climate and culture rather than that which was in place at the time the alleged offences took place. 

There does however appear to be an opportunity for advisers and advice firms to shine and we will be waiting with anticipation for the form of the final regulatory framework in late 2025/early 2026.

 

Pension Scams

A reminder that this is still a very real threat. There are the more obvious scams like firms claiming they can help a client or relative unlock a pension before the age of 55, but some are more subtle. Firms who don’t allow callbacks for example, or just other contacts on their website which mobile phone numbers or a PO address. Investments remain perhaps the most common area. Always be on guard on behalf of your clients for investments promising returns which are simply off the scale, or anything with a “limited-time offer” or some sort of cash incentive or free pension review.

It is worth at this juncture recognising the work achieved by the recent transfer regulations in this area. Whilst the Amber flags and Moneyhelper referrals are often frustrating for clients and advisers in delaying what are usually legitimate transfer requests, there is evidence that the number of clients who have been scammed through a pension transfer has reduced since the rules were introduced in October 2021.

And finally…

A reminder to advisers that cash held in our pooled SIPP bank accounts attract an interest rate.

Details can be found via this link.

 

IMPORTANT NOTE Please note that any information provided is not financial advice. IFGL Pensions is not authorised to provide financial advice, or taxation advice. This information is based on our understanding of current regulations and requirements.