That is the view Broadstone stressed when responding to the government’s technical consultation – Inheritance Tax (IHT) on pensions: liability, reporting and payment.

However, the independent financial services consultancy said it does hold concerns around the treatment of taxation around the value and control of lump sums both from defined benefit (DB) schemes and from death in service policies.

Broadstone said the changes made in 2015, which allowed for significant tax advantages on death benefits where the member is younger than 75 on death, have always appeared unduly generous.

Many DB schemes pay out lump sums on death, but these are often by scheme design and not any form of wealth transfer- they are purely functions of the scheme’s rules.

Broadstone said it believes these lump sums should continue to be exempt from inheritance tax.

Death in service lump sums are often paid in respect of younger people experiencing a shock of early death.

Again, Broadstone does not believe it should be in the scope of the policy to apply IHT to this.

Broadstone head of policy, David Brooks, said: “It is understandable that the government is reforming the inheritance tax regime to ensure pensions are used for their primary purpose of providing income in retirement rather than enabling wealth transfer.

“However, we believe there are a few elements of the proposals that could be loosened, particularly where the primary purpose of lump sum payments is not for estate management.

“Tightening this regulation will create an IHT framework that ensures tax reforms are born by those with the broadest shoulders without unnecessarily penalising pension savers and their families in emotional and stressful circumstances.”

“We are also concerned about the impact on “common law” partners who could also be treated unfairly compared to the current tax situation on death and we would urge the government to consider updating the IHT tax system for the living circumstances of society.”

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This milestone is reflective of a resurgence in annuity purchases across the market.

The Association of British Insurers has reported a 50% increase in sales in the first half of 2024, compared to the same period the year before.

L&G’s sales are up 55% compared to the same week in 2023.

While improved rates on annuities have been a driver of this growing demand, there’s also increasing awareness of the other benefits a guaranteed income can provide.

A recent study from Legal & General and the Happiness Research Institute, an independent Danish think tank, looked at the link between annuities and happiness.

The study found that retirees with an annuity score more positively across multiple wellbeing measures than those who don’t.

It also discovered annuity holders more likely to report the highest level of financial confidence compared to those without one (24% versus 21%).

Legal & General managing director, retail retirement, Lorna Shah, said: “Annuities continue to be a great choice for many, providing income security in later life.

“Improved rates, which mean people can get more for their money, have played a key role in driving interest, but this isn’t the only factor.

“Together with the Happiness Research Institute, we’ve shown how the certainty of an annuity enables a happier retirement, removing the fear of outliving savings and providing retirees with a sense of financial security that eases stress and uncertainty.

“The good news is that retirees have options. It’s not an either-or decision.

“Combining the guaranteed income of an annuity with other sources, such as income from investments or drawdown, can provide even more flexibility, ensuring that essential expenses are covered, while offering the opportunity to grow other assets.”

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The study, which surveyed just under 12,000 individuals, found that the top three advice priorities across the country were retirement planning advice, general investment and savings advice, and better budgeting.

However, there is a large generational divide as the cost of living and budgeting see younger generations push retirement planning down the line.

Only one in ten (12%) Gen Z and two in five Millennials name it as an advice priority in the next six months.

Against a changing retirement landscape, SJP highlights the importance of starting retirement planning as early as possible.

The nation’s top advice priorities

The fifth chapter of SJP’s Real Life Advice Report, launching today, looks at where the nation is likely to look for financial advice in the future and their advice priorities for the next six months.

The study found that 1 in 5 people (19%) would find retirement planning advice the most beneficial in the next six months, ahead of general investment and savings advice (17%) and budgeting (14%). Other priorities include:

• Wills planning – 13%
• Putting an overall financial plan in place – 11%
• Keeping my financial plan on track – 11%
• Getting a better mortgage deal – 10%
• Inheritance & estate planning – 10%

While retirement planning is the top advice priority overall, it most often becomes a major focus only later in life, leaving less time to improve retirement outcomes.

Almost a third (30%) of Gen X (44–59-year-olds) name retirement planning as their advice priority for the next six months; however, it falls much further down the rankings for Millennials (28-43 year-olds) and Gen Z (18-27 year-olds).

Millennials rank better budgeting as their top advice priority (22%), with general advice on investment and savings (21%) in second and retirement planning in third place (18%) on par with the demand for advice on mortgages.

For Gen Z, advice on how to budget better is again the priority over the next six months for one in four (26%).

Retirement planning sits in fifth place at 12% behind general investment and savings advice (18%), putting an overall plan in place (16%), and advice on managing debt (15%).

SJP’s analysis demonstrates the difference that retirement planning earlier in life can make to retirement outcomes.

It finds that if a 30-year-old made a gross investment of £5,000 each year into a pension scheme, they would have a projected fund of £268,000 available at the age of 60.

However, just a five-year delay would result in a £67,000 reduction to that retirement fund, and a 15-year delay, starting contributions at age 45, would reduce it by £169,000:

Calculations assume an average annual investment growth before charges of 4.60% each year and investment charges of 1.96% each year. Contributions are invested on the same day each year in a pension and are shown before charges are taken into account.

SJP divisional director of retirement and holistic planning Claire Trott said: “While it is perhaps unsurprising that advice on budgeting better, investments and savings, and managing debt is more pressing at a younger age, now that individuals have more responsibility for their retirement finances, it’s more important than ever to start planning early.

“The more time you have to build up your savings pot, the more time it has to compound, resulting in a larger pot when you retire. If you leave it too late, it can be difficult to make up the deficit.”

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This is according to Invesco’s UK retirement study, which also found that 64% of advisers said people who seek advice during accumulation have a better understanding of pension options than those who only take advice at retirement.

Additionally, 79% of advisers said running out of money during retirement is a top client fear.

The study stated that defined contribution (DC) savers now represent the dominant source of retirement income.

Still, 32% do not spend as much of their pension, even when they can afford to, because they dislike the idea of their pension savings going down.

Invesco added: “Fear of outliving savings may lead to an unnecessarily frugal retirement and a reduced quality of life.”

The fear of the unknown is preventing retirees from spending, with advisers saying the top concerns are health costs (35%), worry about seeing their savings post diminish (32%) and a desire to leave an inheritance (28%).

Additionally, over half (51%) of advisers are not satisfied with current retirement products and 75% are calling for product innovation to help meet the evolving needs of DC retirees.

Also, more than a quarter (29%) of non-advised retirees do not actively seek any retirement information.

Pensions Freedoms that were introduced in 2015 do offer flexibility and choice, “but navigating this without expert knowledge or guidance can be incredibly difficult”.

Advisers have said there are three major misconceptions among their clients. The first is underestimating how much they need to save (51%), secondly understanding their life expectancy (47%) and finally miscalculating likely retirement spending (46%).

Invesco’s said these misconceptions are often the result of low pension engagement throughout accumulation.

Invesco head of DC client engagement Mary Cahani said: “DC pensions are increasingly becoming the primary source of income for new generations entering retirement. This shift has highlighted significant challenges related to the uptake of financial advice, the adequacy of pension savings and the quality of decumulation products.

“Addressing these issues has become an urgent priority, especially following Rachel Reeves’ Mansion House speech, which emphasised the need for a comprehensive pension review.

“We are observing that collaboration across the industry is vital for maintaining a strong focus on member outcomes throughout the entire retirement journey. Most importantly, it is becoming clear that collaboration and member engagement need to be represented earlier in the process, particularly during the transition from saving to spending, so that individuals are better equipped with the necessary advice and guidance when looking to access retirement solutions that ensure an adequate level of retirement income.”

In order to obtain these results, Invesco surveyed 151 retirement focused advisers and 500 consumers with at least £50,000 in DC pensions either at or in retirement.

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This is an increase of £500m (11%) compared to last year.

The latest figures are the first to be published since Rachel Reeves’ controversial first Budget last month, where significant reforms to the IHT regime were announced.

These included a freeze on the current thresholds for an additional two years and bringing inherited pensions into the scope of IHT from 2027.

Wesleyan specialist financial adviser Jonathan Halberda expects the government’s decision to leave the £325,000 IHT threshold unchanged until 2030 means receipts are only going to increase as more people get trapped.

Halberda said: “Inheritance tax was one of the more contentious revenue-raising measures announced in the recent Budget.

“By leaving the current threshold unchanged until 2030, fiscal drag means IHT will inevitably continue to generate more cash for government coffers, as we have seen in today’s data.

“From April 2027, inherited pensions will also be included, which by the government’s own estimate will mean an extra 10,500 estates will have to pay.”

Halberda also described the Budget as a “missed opportunity” to overhaul and simplify the IHT regime.

He stressed the importance of seeking expert financial advice to “help you formulate a tailored plan that’s right for you and your family”.

Abrdn chief commercial and strategy officer Jonny Black said: “IHT receipts are likely to keep rising, given the extension of the IHT threshold freeze at the Budget and the government’s proposed plans to bring pensions into its scope.

“If people haven’t made plans for passing on their wealth, it’s even more important that they do so now. And if they did have plans, they may need to revisit them.

“IHT is already a complex tax that can be tricky to tackle at a very sensitive time in people’s lives and advisers are instrumental in making it manageable and helping people plan with confidence.”

Between 2024-25 and 2028-29, the OBR now estimates the Treasury will collect more than £50bn in inheritance tax alone, a 19% increase of more than £8bn compared to the forecast made following ex-chancellor Jeremy Hunt’s Spring Budget in March.

Group communications director at retirement specialist Just Group, Stephen Lowe, added: “Inheritance tax has provided a steady stream of income for the Treasury and this year is on track to grow to new record levels for a fourth year in a row.

“These increases start to look modest compared to the forecast inheritance tax takes following the reforms announced in the Budget.

“With the thresholds frozen for another two years, any growth in property prices or other assets will drag more estates over the threshold, as reflected in the number of deaths subject to IHT now forecast to reach nearly 10% by the end of the decade.

“These changes underscore the importance of people staying on top of the value of their estate and keeping an eye on the future.

“Estate planning is complex and professional financial advice can be immensely helpful for people who want to manage their estate efficiently and pass on the maximum inheritance to loved ones.”

Quilter tax and financial planning expert Rachael Griffin said incorporating pensions into the taxable estate from 2027 will “turbo charge” the amount of IHT collected.

The tightening of reliefs for AIM shares and Business Relief (BR) will also raise more for government coffers, she added.

“These figures underscore the government’s reliance on fiscal drag and incremental policy changes to boost revenues without formally increasing headline tax rates.

“While Labour has maintained its pledge not to raise taxes on working individuals, the combination of wage inflation and frozen thresholds means that taxpayers are increasingly being caught in higher tax brackets.

“As the government navigates these complex fiscal dynamics, it will be crucial to monitor the long-term impact on taxpayers and the economy.

“With tax receipts continuing to climb, the need for clear, transparent communication and strategic financial planning becomes ever more critical.”

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This is what Scottish Widows workplace savings specialist Susan Hope told Money Marketing while discussing its latest women and retirement report 2024.

The report also says that the gender pensions gap will only close in 20 years if the government implements further policies encouraging women to save into a pension.

These policies include:

• Getting more women saving into a pension and qualifying for the full State Pension;
• Increasing the confidence women have to invest and manage their finance;
• A shift in approach to joint financial planning so that women do not lose out when annuities are purchased or in the event of divorce.

The report did highlight that “good progress in reducing the gender pensions gap over the last 20 years” has been made.

The gender pensions gap has reduced from 52% to 33% since 2008 for those aged 50-64, but women currently nearing retirement are still likely to have pension pots that are a third smaller than men.

Scottish Widows also predicts that, at the current rate, two million women in the UK feel like they will never be able to retire.

In order to make further positive changes, Hope believes collaboration is needed between regulation, the industry and employers.

Hope said this issue does not only impact women: “It affects everyone as everyone has women in their life.”

In regards to auto-enrolment, Hope said it has been “great”, but 43% of women do not feel confident enough to manage their own pension.

Additionally, issues remain that predominantly impact women. If a single mother works two jobs part-time and earns under £10,000 per job, she will not be eligible for auto-enrolment and miss out on a pension.

“So working mums can be hit.”

Scottish Widows head of pensions policy Pete Glancy said: “Within the pensions system, reforms to auto-enrolment could allow those working part-time, or juggling multiple jobs, to benefit from pension contributions, including contributions from their employer where they themselves are unable to save at that point in time.”

The report also looks at women’s attitude towards investment for the first time in the report’s 20-year history. It showed only 38% of women invest outside of pensions, compared to 55% of men.

This gap is exacerbated for young women as 34% of women aged 18-24 invest, compared to 64% of men aged 18-24.

Women are less likely to feel that investing is for people like them, and they are less likely to feel sufficiently supported to learn more about investing.

Still, more women aged 18-24 would consider investing if they had the right advice and resources. The most common cited barrier to investing was understanding potential risks and rewards better (36%) and access to official financial advice (31%).

Hope does feel the gap is “within our reach to close it”, but we need to take a “holistic” approach towards pensions.

Hope added: “The pensions gender pay gap belongs in the past; let us be the generation that makes it history.”

Glancy added that the government has announced a Pensions Review, where Scottish Widows believes Phase 2 of that review will have the gender pensions gap “within its scope”.

“This is the opportunity for all stakeholders who genuinely believe in gender pensions equality to contribute to that review, making the case for the reforms that will make a difference.”

My Pension Expert policy director Lily Megson said: “Yet again, we’re faced with damning evidence that British women are drawing the short straw when it comes to their pension planning.

“Targeted support from the government is therefore a must. Taking action through policy that boosts financial education, encourages active pension engagement, widens access to auto-enrolment and closes the gender pay gap is a vital step in empowering women to achieve the retirement they deserve.”

In order to obtain these results, Scottish Widows commissioned YouGov to survey 5,102 adults aged 18+.

YouGov also conducted a second survey to better understand investment behaviours and shifts in attitudes, with 3,650 adults aged 18+.

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This is according to research from Legal and General and the Happiness Research Institute, an independent Danish think tank.

The research also shows the top reason people opt for an annuity (31%) is as a result of a recommendation from a financial adviser.

Retirees with an annuity score more positively across multiple wellbeing measures.

They report greater satisfaction with their current lives, relationships, free time and social activities, with 51% more likely to report lower levels of stress than those without one.

Retirees who are annuity-holders also feel more financially secure, as they are more likely to report the highest level of financial confidence compared to those without one (24% versus 21%).

They were also 40% more likely to consistently afford their credit-card payments or loans compared to those without one.

Still, according to the latest Financial Conduct Authority Retirement Income Market Data, only 10% of pension pots accessed for the first time in 2023/24 were used to purchase an annuity.

Despite this low take-up, advisers play a big part in those who do choose to purchase one.

Over a fifth (23%) of retirees said the draw of receiving regular payments and the assurance of a stable income that lasts a lifetime are key factors in buying an annuity.

Additionally, 16% opted for an annuity to make budgeting easier, while 13% wanted greater control over their finances.

Legal & General Retail Retirement managing director Lorna Shah said: “Too often, conversations around the value of an annuity are limited to rates. However, our findings reveal a clear ‘happiness advantage’ for those with annuities.

“The stability of a guaranteed income gives retirees peace of mind that their money won’t run out, even if they live past 100.

“It takes the guesswork out of budgeting and lets people focus on enjoying retirement, rather than spending time worrying about their finances.

“While the benefits of an annuity can often be overlooked when it comes to retirement planning, it’s important to note they don’t have to be the only solution as they can be part of a blended approach.

“Combining the guaranteed income of an annuity with other sources, such as income from investments or drawdown, can provide even more flexibility, ensuring that essential expenses are covered, while offering the freedom to grow other assets”.

To obtain these results, Legal & General spoke to 3,000 UK retirees.

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Rumours suggested she may look to either cut the percentage of tax-free cash available from 25% or reduce the maximum amount from its current £268,275.

The rumours caused concern, with significant rises in people looking to take their tax-free cash ahead of today’s Budget (30 October).

Standard Life retirement savings director Mike Ambery, said that it would have been a “potentially powerful tool in the chancellor’s revenue-raising kit”.

However, he added that “it seems the challenges and complexities proved too great for this Budget”.

“Firstly, they would have been highly complex to implement and secondly they came with political downsides given their knock on implications for public sector workers in particular,” Ambery said.

“As we have now seen, there are other aspects of the system which pose fewer logistical issues and perhaps come with fewer strings attached.

“There is a possibility that the government will revisit the question of tax relief alongside pensions issues in the round in the adequacy section of their upcoming Pensions Review.

“Tax relief is however a key tenant of the current pension system and any future discussion needs to ensure there are adequate incentives for people across the earnings spectrum to give up income today for greater security in retirement.”

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, added: “The chancellor’s decision not to tinker with tax free cash has been greeted with a huge sigh of relief.

“This is a hugely popular part of the pensions system and any move to reduce it would have severely undermined people’s trust.

“Rumours have swirled in recent weeks, and it’s caused huge concern with people looking to take their tax-free cash before any change was announced.

“It’s a move that many could come to regret as ripping money out of a pension removes it from a hugely tax efficient environment and denies it the ability for further growth.

“There’s also the chance that putting it in other savings vehicles potentially exposes it to a whole range of taxes, such as capital gains tax, that it otherwise would not have been.”

Morrisey said that anyone who took their money from their Sipp but wishes to reinvest it “should consider this carefully”.

“Those who have only recently opened a drawdown account could be able to reverse their decision,” she said.

“But there’s the potential to breach recycling rules aimed at preventing people exploiting the system for extra tax relief and be clobbered with a fine.”

She said tax-free cash reform is “always a popular subject for Budget rumour”, but stressed “we need to avoid causing panic that can result in people taking knee-jerk decisions”.

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She said moving from accumulation to decumulation is likely to change a customer’s attitude to risk, so this should be reassessed.

“Advisers should not assume that a risk profile remains the same, either when moving into decumulation or from previous advice meetings,” she added.

She made the comments during a keynote speech at Money Marketing Interactive in Leeds yesterday (24 October).

“A key risk is capacity for loss – the ability to absorb losses in retirement, which is critical given the lower future earning potential.

“Many customers may have been able to recover losses during their working years, but this changes in retirement.”

She cited the FCA’s thematic review of retirement income advice, which found that some advisers’ files did not show that capacity for loss had been assessed, or where it had been assessed.

“Clear consideration of this is crucial to demonstrate the suitability of advice,” she said.

“Cash flow modelling (CFM) tools can be used for capacity for loss assessments. However, firms need to assess both attitude to risk and capacity for loss consistently.

“Tools such as standard questionnaires can be useful, but you should be aware of their limitations, especially when the language or questions are not tailored to decumulation, which can lead to incorrect profiling.

“Whatever approach is used, firms must demonstrate that their methods are suitable for retirement income advice.”

Pension freedoms came into effect in 2015, giving consumers more choice and less prescription in how they meet their retirement income needs.

“They can take as much or as little as they like, or even fully cash out if they choose,” said Tuckley.

“As you know, there’s no longer a requirement to buy an annuity, and drawdown is no longer just for the wealthy.

“However,” she warned, “more choice brings more complexity, not just for consumers but also for advisers.

“Most consumers have moved away from guaranteed income for life and keep their pension savings invested, which presents a big challenge for advisers.”

She said advisers need to help consumers manage ongoing risks and make complex decisions about meeting their income needs sustainably.

The FCA is following up on the thematic review and is “completing further work” on retirement income advice, which Tuckley said will continue to be a “priority” in its strategy.

“We want to explore this in more depth to understand how firms are responding to our report,” she said.

The regulator aims to publish further findings in the first quarter of 2025.

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The insurance provider has published a report focused on the 100-year life. It examines what living longer means practically, financially and emotionally.

It found that, while overall 15% have sought professional advice on inheritance and intergenerational wealth planning, those who have consulted a financial adviser are much more likely to have discussed their intentions with family members.

Two-thirds of those who use an IFA have discussed their intentions, compared with 44% who do not have an IFA.

Meanwhile, 62% of those who use an IFA have written a will, compared with 32% of those who do not.

And 28% of those who use an IFA have established power of attorney, compared with 11% who do not.

Propensity to have written a will and established a PoA by use of IFA

“Those who use an IFA are more prepared for all later-life eventualities than those who do not, including funding their long-term care, financing their retirement and making sure their loved ones are looked after once they die,” Canada Life said, in its report.

“These figures highlight the notable benefits of using professional advice. Expert guidance is often a starting point for wider discussions with those closest to us.

“Our research suggests many more people could benefit from doing this to prepare for later life and facilitate the transfer of wealth.”

The report also suggested that, overall, people who use an independent financial adviser are more likely to feel satisfied and in control of their lives than those who do not.

Canada Life reported that 75% of respondents who use an IFA are satisfied with their lives, compared with 61% of those who do not use an IFA.

Almost six in 10 (58%) who use an IFA feel in control, compared to just over two-fifths (44%) of those who do not use an IFA.

The research found that 54% of the UK population have used professional advice, which includes IFAs, bank or building society advisers, solicitors, accountants, mortgage brokers, insurance brokers or stockbrokers.

Under a quarter (23%) have used an IFA.

The propensity to use professional advice, and an IFA specifically, closely correlates with age. Those 55 years and over are more likely to use both than the under-55 age groups.

In addition, 52% of those under 35 can see the benefit of accessing professional financial advice – higher than for any other age group.

However, 42% do not know where to turn for advice, suggesting a need for better access to information and reassurance.

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The regulator’s latest retirement income market statistics, published today (26 September) showed the total number of pension plans accessed for the first time increased by 19.7% to 885,455 in 2023/24 from 739,652 the previous year.

Around 30% of pension plans accessed for the first time in the past year were accessed by plan holders who took regulated advice.

This was down from 32.9 % the previous year.

Quilter head of retirement policy Jon Greer said this ongoing drop suggests that more people are navigating the complexities of pension withdrawals without professional help.

This, he said, raises concerns about the long-term sustainability of their retirement strategies.

Sales of annuities saw the biggest jump, from 59,163 in 2022/23 to 82,061 in 2023/24 (38.7%).

Sales of drawdown increased by 27.9%, from 218,183 in 2022/23 to 278,977 in 2023/24.

The overall value of money being withdrawn from pension pots rose to £52.1m in 2023/24, from £43.2m in 2022/23 – an increase of 20.6%.

Greer said the substantial increase indicates that more individuals are turning to their pensions to manage their financial needs.

This, he suggested, is likely influenced by the cost-of-living crisis “forcing people to dip into their pension pots” to supplement other forms of income.

The regulator and the government have made it clear that they intend to improve the UK pensions system.

The FCA published its thematic review of retirement income in March 2024.

It suggested that while there are no systemic issues in retirement income advice practices, there are pockets where they could be improved.

This includes approaches to determining income withdrawal and gathering information to demonstrate advice suitability.

The new Labour government yesterday (25 September) closed its call for evidence on the first phase of its landmark pensions investment review.

The review will aim to boost investment, increase pension pots and tackle waste in the pension system.

Greer said: “This review is expected to prioritise clearer guidance and support, helping individuals make informed decisions and avoid detrimental financial mistakes.”

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