Nigel Sloam & Co – Written Evidence (DFI0202)
Reforming inheritance tax: unused pension funds and death benefits
Nigel Sloam & Co is an independent firm of Actuaries and Consultants established in 1979 and is regulated by the Financial Conduct Authority (‘FCA’) and the Institute and Faculty of Actuaries (‘IFoA’).
The firm has been involved in providing actuarial, trustee, administrative and consultancy services to all types of pension arrangements and has a particular expertise in respect of discretionary trust-based UK HMRC Registered (formerly ‘Approved’) Pension Schemes, many of which are “Member-Directed” such as Small Self-Administered pension Schemes (‘SSASs”) and Self-Invested Personal Pensions (‘SIPPs’).
Another company in our group, NSS Trustees Limited, which is separately authorised by the FCA, acts as both a Self-Invested Personal Pension (‘SIPP’) Operator and as independent trustee of many occupational pension schemes.
Our response below is produced to include input from both firms, in the light of our long experience.
We have previously responded to the HMRC Technical Consultation on Inheritance Tax on Pensions and this response can be found here: https://www.nigelsloam.co.uk/news/nigel-sloam-co-actuaries-and-consultants-and-nss-trustees-limiteds-response-to-the-hmrc-technical-consultation-inheritance-tax-on-pensions-liability-reporting-and-payment.
Our Senior Partner, Nigel Sloam, has also contributed to the response from the Association of Consulting Actuaries (‘ACA’).
We appreciate and thank you for the opportunity to contribute to this call for evidence from the Financial Bill Sub-Committee of the House of Lords.
Nigel Sloam & Co, Actuaries & Consultants
IDENTIFYING INHERITANCE TAX DUE
We believe that identifying and reporting Inheritance Tax on unused pension funds and death benefits will be very challenging for personal representatives and will certainly take much more time than the Government’s proposals envisage.
The Government’s proposals do not appear to recognise that assets within pension scheme may include illiquid investments – such as real’ commercial property, private company shares, loan positions and certain collective investments – and take time to professionally value.
They also do not appear to be aware of the significant time it can take to obtain valuations from historic insurance company pension arrangements,
Trustees and/or Pension Scheme Administrators may then not be able to finalise their decisions about the ultimate beneficiaries of such residual pension funds until the circumstances and needs of every potential and eligible beneficiary are identified and assessed and they are in a position to exercise their discretion as to the allocation and/or distribution of such.
In a significant number of cases, this is currently – and will continue to be – a protracted process. This is particularly in cases where the deceased may have been divorced or had a civil partnership dissolved and have two or more families all of whom may have been dependant on the deceased.
We agree that there should not be any excuse for Pension Scheme Providers, Trustees and Scheme Administrators to delay matters.
The House of Lords should be aware, however, that it can often takes many months to obtain even standard information from an insurance company regarding accrued pension benefits.
Further for assets such as ‘real’ commercial property, private company shares, loan positions and certain collective investments professional advice is needed as regards valuation.
In such cases the evaluation of these interests has an impact not just on the residue of the deceased person but also on surviving members for whom assets are held in a common trust.
The Government’s proposals to allow only 4 weeks to value assets is totally impracticable and unacceptable and will lead to serious consequences for beneficiaries.
If Pension Scheme Providers, Trustees and Scheme Administrators are not given adequate and realistic timescales to value assets and exercise any discretions as regards the award of benefits, personal representatives will not be able to appropriately determine any tax payable.
LIQUIDITY CHALLENGES
First, as referred to above, where such unused pension resources include insured company arrangements, then the Committee should be aware that there are huge delays in obtaining information and payments from the insurers.
Part of this is because there has been a considerable consolidation of insurance companies and as a result the newly consolidated groups are unable to deal swiftly with historic policies. These difficulties are already experienced when a live member wishes to take benefits. Where an insurance company will also have to deal with previously unrelated people it must be expected that the process will take even longer.
For those who have accrued pension benefits in Member-Directed Pension Schemes, the current Pensions Tax Regime allows investment in assets which are illiquid including interests in ‘real’ commercial property, shares in private companies, loans to connected and unconnected parties and collective investment funds which do not deal daily.
In particular, the current Pensions Tax Regime allows owners of Small and Medium Enterprises (‘SMEs’) to utilise their own pension funds to invest in ‘real’ commercial which can be let to their businesses or to lend back funds to the same – providing this takes place on arm’s length terms.
Valuation of such assets requires expert advice, which can take time (e.g. for properties to be valued by a Fellow or Member of the Royal Institution of Chartered Surveyors or for the value of shares in private companies to be determined by a Chartered Accountant etc) and this does not appear to have been given sufficient consideration in the Government’s proposals.
Equally, beyond issues in respect of valuation, the Government’s proposals could also result in the forced sale of assets to settle taxes within unrealistic timeframes.
For example, if the owner of an SME has used their own pension funds to provide business premises and/or finance and this must be withdrawn within a short time frame to settle taxes then this will clearly be very disruptive to that business.
Further, in multi-member pension schemes such as SSASs the trustees should be acting in the interests of all beneficiaries to meet their fiduciary duties. If they proceed with a forced sale of an asset to allow settlement of taxes on the death of one particular member that forced sale may clearly impact negatively on the pension accrual of other members.
To avoid these problems, it is our strong recommendation that there should be realistic time scales for the valuation of assets and provision for time to pay.
If pension beneficiaries are paid benefits in cash form which have been subjected to tax, then obvious difficulties will arise unless such beneficiaries have been instructed to reserve some of their proceeds for payment of subsequent income tax.
By contrast, if beneficiaries have received payments in specie or alternatively a nominee has been awarded benefits in a Flexi-Access Drawdown fund, then the ability of the pension beneficiary to make payments will depend on the nature of the assets received directly and/or in a flexi access drawdown format and our comments above will apply.
Our view is that in all or any of the difficult circumstances referred to above, personal representatives should be given considerably longer time to make payment as follows:
a) That the minimum such time should be the earlier of when payments are actually distributed to beneficiaries or 1-2 years from the date of decease.
b) That options are given to make instalment payments where the underlying assets in the deceased’s unused pension resources are either real estate, unquoted shares, loans or unrealisable insurance policies or collective investments and a period of up to 10 years should be given for the payment of tax, albeit with interest.
IMPACT
We believe the Government has woefully ignored – or more likely is totally unaware of – the impact of proposals on personal representatives and Pension Scheme Providers, Administrators and Trustees.
In this connection, very belatedly, this firm has been asked to assist HMRC just recently in explaining matters alluded to above which quite clearly have not been considered by the Government hitherto.
We would also take the opportunity of highlighting that the impact and short notice will not just have an impact on beneficiaries of deceased pensioners and other pension scheme members but will also harm business into which pension funds have made investments which are not liquid.
IMPLEMENTATION AND TRANSITION
We believe that those who may be affected by the proposed change are now appreciating that the Government’s proposals will harm the interests of dependants and beneficiaries of deceased members, are in practice unworkable and will also have a negative effect on swathes of business activity in the UK.
In consequence, the Government should re-think the timescale of its proposals and simultaneously deal with the anomalies that it is creating between the application of Inheritance Tax on private estates as compared with what is proposed for pension schemes.
The Government and House of Lords should also now understand that Government proposals would actively discriminate in cases where there are dependants of a deceased member who was not married or in a civil partnership and this accounts, we suggest, for potentially over millions of cases.
To be fair, the Government should highlight exactly how it’s policy will impact all those affected by its current proposals.
We are very concerned at the timetable regarding the valuation of assets, the exercise of discretion and the time given for payment rather than the time to introduce these matters.
We do not believe that the Government has sufficiently warned families – young and old – of the harmful consequences of what it is doing.
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7 October 2025