DWP minister Torsten Bell has discussed the Government’s rationale behind state pension age changes and inheritance tax being extended to pensions
A senior DWP minister has addressed a major new tax affecting pensions. Torsten Bell recently appeared before the Work and Pensions Committee to discuss modifications to the state pension age. The state pension age will increase from the present 66 to 67, rising gradually between April 2026 and April 2028.
Parliament has also approved legislation for the qualifying age to rise again, from 67 to 68, between 2044 and 2046. Mr Bell explored the consequences of requiring people to wait longer before claiming their state pension, alongside the Government’s reasoning behind these changes. He also faced questions about a substantial transformation in pension taxation, as inheritance tax will shortly include pensions. Inheritance tax is a 40 per cent charge applied to the total assets you leave behind when you die. Currently, pensions are excluded from your estate for inheritance tax calculations, but they will come under this tax regime from April 2027.
Labour unveiled this tax modification in its first Autumn Budget, in 2024. Mr Bell outlined the logic behind the alteration: “There is a long-standing understanding that the purpose of pensions, and why we provide exceptionally generous tax relief – which we rightly do, of about £70 billion a year – is because we want people to have a decent income in retirement.
“That is what it is for. That is what it was always for.” He argued that preserving pension exemptions from inheritance tax had generated perverse incentives, prompting individuals to utilise their pensions “not to provide a decent income into retirement but to avoid inheritance tax”.
Causing problems and confusion
Mr Bell said: “That is a very bad idea, because you do not want to see pension vehicles and how they operate getting confused about what the purpose is. We saw that causing real problems and confusion.
“Obviously it needs to be done in the right way. All that the changes are doing is bringing us back to the world that we have always lived in.”
The minister went on to clarify that the tax incentives surrounding pensions are fundamentally designed so individuals can “smooth their income over their life”, reports the Liverpool Echo. He told the committee: “That is what it exists for.
“It is not there for for advisers to make money by saying to some people, ‘Don’t use your pension to provide an income in retirement. Use all your other wealth, maybe even sell your house, and do other things in a contorted fashion, because for some reason we have decided that a pension is not about providing income in retirement but is an inheritance tax avoidance vehicle.’ “
People drifting into the tax net
The Government previously stated that the extended tax will encompass most untouched pension pots and death benefits. Alex Pugh, a chartered financial planner from wealth management firm Saltus, characterised this as a significant shift and cautioned that many individuals may remain oblivious to its impact on them.
She said: “Inheritance tax planning is already complex, but bringing pensions into the tax calculation from April 2027 really shifts the dial. Many people will drift into the tax net without realising it.
“After property, pensions are often someone’s largest asset, and with tax thresholds frozen since 2009, more estates are being pushed over the line. In truth, any individual or couple could now be affected – even those who never considered themselves ‘wealthy’. It’s a perfect storm created by rising asset values and outdated tax limits.”






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