Louise Rollings worked hard as a single mum raising her son on her own – but now she fears the pension she wanted to gift him will be hit by inheritance tax charges. The 64-year-old, from Hadleigh in Essex, had planned to leave her workplace pension untouched so that her son, Jack, could inherit it after her death. But following Chancellor Rachel Reeves’ budget last November, the Government is set to include unused pensions as part of a person’s estate – meaning they could be subject to inheritance tax. Ms Rollings has been told her estate is likely to be subject to the tax – meaning her son is set to lose out. She is now drawing down 25 per cent of the value of her pension so she can gift it tax-free to her son. (Photo: Supplied)

Career in IT

The mother-of-one retired in February 2024 after working for a financial services IT company for 45 years. She had started as a trainee computer operator in 1978 and worked her way up over the years, eventually holding senior management positions. Ms Rollings says she now has a comfortable company pension, worth tens of thousands of pounds, and plans to live off this in her retirement. “I know that, in the pension world, I would be known as extremely fortunate,” she told The i Paper. “I understand that I’m better off than a lot of people.” But she says she worked hard for decades and “sacrificed a lot” to get to the position she is in now. “As a single parent, I took responsibility for my circumstances and Jack’s upbringing on my own. I went back to work eight weeks after Jack was born and never relied on benefits,” she said. (Photo: Getty/Westend61)

Giving her son the 'best start possible'

Although she didn’t have many savings while her son was growing up, she paid for him to go to nursery and then a fee-paying primary school to give him the “best start possible in life”. She said: “After mortgage repayments, education fees and general life costs, there was rarely much left at the end of the month to put away as savings”. She now feels “disappointed” that the rewards of her hard work are being taken away from both her and her son. “Jack had to put up with a lot as a child. I had to work and so wasn’t always around for him,” she said. “In his own way, he contributed too and he deserves something back for that.” (Photo: Ben Birchall/PA)

'Penalised for having worked hard'

Under the proposals set out by the Government, income withdrawn from a loved one’s pension can also be subject to income tax once passed on to the beneficiary. The amount people can usually pass on inheritance tax-free – known as the nil rate band – will also be frozen at £350,000 until 2030, two years longer than originally planned. AJ Bell, a company that provides online investment platforms and stockbroker services, has said that as a result of this double taxation, pension assets would be subject to a 64 per cent effective tax rate on death if the pension pot exceeds the nil rate and the beneficiary is a higher-rate taxpayer. “The changes announced in the Budget make it feel as though people like me are being penalised for having worked hard, prioritised, budgeted and made sacrifices all our lives,” Ms Rollings said. (Photo: Brian A. Jackson/Getty/iStockphoto)

'Little space to feel appreciated and rewarded'

She said she understands the economic situation the country is in and that changes had to be made, but the new system “feels very crude”. She said: “As it stands, very little space has been left for people who have worked hard all their lives to build up modest estates to feel appreciated and rewarded. What’s the point in hard work if the rewards of all that ambition and determination are taken away in later years?” Ms Rollings says she spoke to Pension Wise in February for advice on pension planning, and at that point she hadn’t intended to take out any lump sums from her pot. Since the Budget, she has done her own research and calculated that her best option is to take out the maximum lump sum from her pension within her taxable allowance and leave the rest where it is. “I fully intend to be around for some time yet, so why wait another 20-plus years for him to receive the inevitable? My son has always been a priority. After the Budget, I thought ‘what can I do to help him?’,” she said. (Photo: Lucy North/PA)

Basing financial planning on 'guesswork'

Following the Government’s changes, a snap poll of savers conducted by savings platform Flagstone found just 28 per cent plan to leave their pensions as they are. One in 10 plan to draw down their pensions and save or reinvest their cash elsewhere, while another one in 10 will spend the money after drawing it down. Sarah Coles, head of personal finance at Hargreaves Lansdown, told The i Paper that bringing pensions into inheritance tax is “complicated”. People will be basing their financial planning on “guesswork”, she says, because people would need to know when they will die and what they will spend before now and then to be sure of whether they need to pay inheritance tax. (Photo: AP/Kin Cheung)

'Could be a horrible penalty to pay'

“It could cause issues for unmarried couples relying on income from the same pension because if they’re not married or in a civil partnership, the estate is assessed for tax after the first death, so there could be tax to pay on a pension that they still need to produce an income,” she said. “There could also be a horrible penalty to pay for those who die relatively young with more in their pension.” As well as this, she says there are issues around whether annuities are included – and there could be difficulties valuing them if so. She added: “While the government considers the issues, there is an opportunity for people to consider their position, and whether it makes sense to give their family gifts during their lifetime, to help protect themselves from whatever taxes may lie in store.” (Costs accurate at the time of first publication, November 2024) (Photo: Fly View/E+/Getty)