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Recent changes to how pensions interact with inheritance tax could lead to more older people getting married, it has been claimed.
This is because wealth left to a spouse or civil partner is exempt from the IHT, and that will apply to pension pots too.
Evelyn Partners’ financial planning partner and retirement specialist Gary Smith also said the changes could lead to an increase in spending among savers and a rise in the popularity of annuities.
In the Chancellor’s first budget delivered in October, it was announced that defined contribution pension pots will be included in estates’ IHT liabilities from April 2027.
The Office of Budget Responsibility estimates an extra 1.5 per cent of total UK deaths will become liable to pay IHT as a result, equivalent to 10,500 out of around 213,000 estates with inheritable pension wealth in 2027 to 2028.
Further to this, 38,500 estates will pay an average of £34,000 in additional IHT because pension assets are to be included in the value of the estate.
As a result, Smith identified several ways that people will change how they live and use assets in retirement to mitigate IHT, such as an increase in gifting and spending.
“One possible reaction to suddenly finding that a whole chunk of money that was previously immune to IHT will now be added to the estate is to start giving it away during lifetime or spending it,” he explained.
However, he added: “Wealth left to a spouse or civil partner is exempt from IHT, and that will apply to pension pots too. So, for many people, this might only become an IHT ‘problem’ when they are the surviving spouse.
‘However, for those who are in a relationship but unmarried – whether co-habiting or not – the issue becomes more pressing. It could well be that many older couples in long-term relationships decide to tie the knot to make this problem go away, for a certain timespan at least.”
The change in rules may also result in annuities becoming more popular as, previously, the IHT benefits of unspent pension funds have meant that many savers did not see the point of spending their pot on an annuity that would die with them.
Smith argued that the IHT rule change might make the guaranteed income of annuities become more attractive to more retirees.
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