Not saving enough for our pensions or saving too much that our pension will be taxed when we die

How comical! – When will the Government get their act together?

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Rachel Reeves previously announced that, from 2027, peoples pension pots will now be included in Inheritance Calculations. Basically taxing your Pension Savings.

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Now the government says people are not saving enough.

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So why do they expect people to save to pensions if they are going to tax you when you die.

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I am not sure many people fully appreciate the consequences of the Government Policy change that included Pension Pots on Inheritance tax calculations.

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If you have a House, a Pension Pot , some savings , a car etc with a combined value £500,000, as an individual, your estate will be taxed on the excess. Given the average house price in London is £675k and assuming it is in joint names, £337k is used up, leaving £163k in savings and private pensions and other assets. The average pension pot at retirement age is over £310k according to “Nuts About Money” and with a little amount of saving, the average person in London will be paying inheritance tax. Put another way, over 50% of London home owners will pay Inheritance Tax.

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Even taking the average house price in the UK plus the average pension pot, the Inheritance tax of £500,000 will be exceeded for the average person at the point of retirement.

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So how do the Government expect to encourage people to save for their pensions knowing that even a modest pension pot is going to be taxed when they die.

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Over the years, I saved hard to ensure i had enough of a pension pot to cover myself and my wife in old age, with the hope/ plan that there would be money left over to fund my children’s pension. However, with the changes the Government has made, this could now be taxed at up to 67%. (see Money Weeks article dated 3rd June 2025 by Katie Williams. Having done what governments have wanted me to do over the years, having kept within the tax rules to ensure no inheritance tax was due, my children will now have to pay inheritance tax. This sucks.

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I have been conned into saving in a Pension envelope only to have it taxed at a greater level than the benefit i received in tax refunds. So why save.

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It seems that the only answer is to spend it and if i run out of money, I suppose the government will give be benefits!!!

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This just confirms to me is that this Government is out of touch and does not understand the consequences of its policy changes, (just like the NI change)

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So what would i do-

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I would allow any unused pension fund to be passed on as a Pension. I would set this limit at , what was the Lifetime allowance for pensions, £1,000,000.

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This unused pension would not be included in the Inheritance tax allowance.

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However, i would include a Tax charge of 10% for any pension passed down up to £1m, as I recognise we need to raise some taxes. Over £1m, i would tax at 20%. My justification for this is that the Pension Pots have benefitted from at least 20% tax relief.

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It becomes a little bit more complicated when we come to final Salary schemes. They have benefitted from tax relief over the years but it is not clear as to what the Fund size is worth against an individual. So for this would calculate the fund size is 20x the annual pension and the provider would then pay 10% of this.

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I believe this will encourage a multi generations pension culture, that over the years will result in less reliance on the state (which means the tax payers)

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I estimate that this would generate at least £5-10Bn plus it would encourage multi generational saving for retirement.