Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282907 
Year of Publication: 
2022
Series/Report no.: 
IFS Report No. R235
Publisher: 
Institute for Fiscal Studies (IFS), London
Abstract: 
The tax system treats funds that remain in a pension at death extremely favourably. Where an individual dies before age 75, funds remaining in their pension escape income tax entirely - there was income tax relief when the money was paid into the pension and no income tax when the money is taken out. Furthermore, any funds that remain in a pension at death (at any age) are not subject to inheritance tax. This results in the bizarre situation where pensions are treated more favourably by the tax system as a vehicle for bequests than they are as a retirement income vehicle. As such, there is a large incentive, for those who can, to use non-pension assets to fund their retirement while preserving their pensions for bequests. This report sets out some options for a more coherent tax treatment of funds that remain in a pension at death. The reforms we propose, potentially with some transitional arrangements, would make the tax system fairer and more economically efficient. The revenue raised by moving to a more sensible system, even if relatively modest in the near term, could be substantial in the longer term. This revenue could be used to cut taxes elsewhere - including income tax and inheritance tax - or to ease the planned squeeze on public spending.
Subjects: 
Savings
pensions and wealth
Taxes and benefits
Income taxes
Tax
Private pensions
Taxes on wealth and spending
Wealth
Persistent Identifier of the first edition: 
ISBN: 
978-1-80103-113-4
Document Type: 
Research Report

Files in This Item:
File
Size
518.02 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.