She said: “We do not support unused pension and death benefits being shoehorned into the Inheritance Tax regime, as this is unworkable and riddled with issues. IHT is already complex, and including pensions within the regime makes it even more so.

“We are asking HMRC to explore a simpler and more effective alternative that would keep any tax charges payable on death within the pensions regime, such as levying a tax on pensions in scope where above a certain level. For example, the first £100,000 of unused pensions on death would be inherited free of the new pension tax charge. This also has the added benefit of avoiding encouraging individuals to run-down their pension too quickly to avoid an IHT charge.

“If HMRC does proceed with its proposals and tries to retrofit pensions into the IHT regime we believe a number of fundamental changes are needed. First, Pension Scheme Administrators and Personal Representatives need to be given much longer than the standard 6 months IHT deadline to gather all the necessary information and calculate any tax liability for what can often be multiple pension arrangements.

“Second, we strongly believe all ‘death in service’ benefits should be outside of scope. These are designed to provide a lump sum or income for beneficiaries, commonly financial dependants, on the untimely death of the individual, often before the minimum normal pension age. There’s no suggestion these can be used to avoid Inheritance Tax.

“As a whole, IHT is designed around a number of exemptions and thresholds, specifically the nil-rate band of £325,000 and the spouse exemption for legal spouses and registered civil partners. This enables these individuals to inherit significantly more, after IHT, than other potential beneficiaries, such as common-law partners or children who may be financial dependants.

“Given the steady decline in opposite-sex marriage, the increase in co-habitation, and the number of children born to unmarried parents now exceeding the number born within a marriage, we believe this is out-of-step with today’s societal norms. In the longer term, we urge the Government to carry out a review of IHT so that it reflects modern day realities.”

The tool provides a clear methodology for addressing key questions, such as ‘How much guaranteed income should be purchased?’ and ‘What level of risk should be taken with the remaining pot of invested assets?’

Head of behavioural finance at Oxford Risk, Dr Greg B Davies said: “A common strategy for advised clients entering retirement is to allocate part of their pension pot to provide a guaranteed income for life, while keeping the remaining portion invested to allow flexible withdrawals. This approach not only reduces sequencing risk but can also enhance the investor’s capacity for risk-taking with their remaining investible assets.

“However, financial advisers face a significant challenge: how to demonstrate and evidence that their recommendations on these two components – guaranteed income and the remaining portfolio – are both suitable independently and optimally aligned together.”

Just Group, who specialise in UK retirement products and services, is feeding live data into the new tool developed by Oxford Risk, providing accurate and up to date intelligence on health, mortality and product pricing – enabling advisers to get accurate insight from the Oxford Risk solution on the level of Secure Lifetime Income (SLI) to provide for their clients, taking into account the client’s personal circumstances.

Stuart Slegg, head of retail investment solutions at Just Group said: “We’re very pleased to continue our work with Oxford Risk to support advisers achieve better outcomes for their clients in-retirement. The challenges faced by clients in-retirement are different to those accumulating wealth, so it’s important advisers can evidence how the solution they recommend meets their clients’ individual objectives.

“There’s a growing body of evidence that shows how including a proportion of Secure Lifetime Income within a drawdown portfolio can enhance client outcomes. How much Secure Lifetime Income to purchase for a client and how to adjust the remaining investments in the portfolio is a question that Oxford Risk have been working hard to solve. Its unique methodology provides advisers with a solution to this important question.”

The tool is being introduced against the backdrop of Increasing regulatory scrutiny of retirement advice in the wake of last year’s thematic review (TR 24/1) whoich has thrown down a challenge to advisers grappling with how best to demonstrate and evidence suitability.

Oxford Risk had observed that many firms in the financial advice industry are struggling to meet the FCA’s stricter requirements, particularly in areas like information collection, suitability assessments, and disclosures.

The behavioural finance specialists cite the growing popularity of guaranteed income products as just one example of how retirement income planning is changing and consequently how advisers must adapt.

Annuity sales rose 39% to 82,000 individual contracts sold in 2023/24, the highest since before ‘pension freedom and choice’ reforms in 2015. The £6 billion invested in annuities was more than 49% higher than the previous year.

In a statement today (20 January) Broadstone said it is supportive of the Government’s objective to ensure that pensions are used for the primary purpose of providing an income for the member. While individuals may have other assets to use in their retirement or later life, it does not believe that pensions should be used as a vehicle for wealth transfer.

However, Broadstone holds 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.

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 and we believe 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. Thankfully, these are rare, but they are there to help next of kin at the worst possible time with the benefit put in place to help the family deal with the tragic loss of a loved one rather than for wealth management purposes. So again, Broadstone does not believe it should be in the scope of the policy to apply Inheritance Tax.

Both of these lump sums, if paid within 2 years of death, would be assessed against the Lump Sum and Death Benefit Allowance, and are subject to income tax or a standalone special tax charge if paid later. This seems sufficient should government policy wish to limit the size of these benefits.

David Brooks, head of policy at Broadstone, 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.”

This increase in wait time comes as the government prepares to make pensions liable to inheritance tax (IHT) which could further delay the grant of probate in many cases.

The number of probate cases taking between 21 and 23 months to be granted has risen by 132% highlighting the ongoing strain on the probate process even before pension wealth becomes part of the process in April 2027.

Length of time taken to grant probate
Year Over 6 months/Over 9 months/Over a year/ Over a year and a half/Between 21-23 months

2020 3,267 1,670 587 122 57
2021 5,332 2,584 891 230 113
2022 5,067 2,681 930 205 97
2023 10,103 4,392 1,371 259 132
2024 (Jan-Mar) 2,722 1,425 490 124 65

Percentage change (2020-2023) 209% 163% 134% 112% 132%

According to the government, a grant of probate should usually be obtained within 16 weeks of submitting an application.

A grant of probate is a legal document that confirms the authority of the executor(s) named in a deceased person’s will to manage and distribute their estate according to the will’s terms. It is required in many cases to access the deceased’s assets, such as bank accounts, property, and investments.

Delays in obtaining a grant of probate can have several adverse effects:
• Financial strain: When probate is delayed, the deceased’s assets, including bank accounts, remain frozen, creating financial stress for beneficiaries.
• Property and asset management: Properties in the deceased’s name cannot be sold or properly managed without probate, leading to potential depreciation or disrepair.
• Investment risks: Delays prevent reallocation or management of investments, potentially resulting in financial losses.
• Tax liabilities: Late payment penalties or missed tax advantage deadlines can arise.
• Distribution delays: Beneficiaries may face financial or personal difficulties waiting for inheritance, exacerbating family tensions.
• Emotional stress: Prolonged uncertainty can add to the emotional strain during an already difficult time.

Jon Greer, head of retirement policy at Quilter said: “Under the current set of rules, we are already witnessing huge delays in granting probate causing significant stress for grieving families. With pensions set to become part of the taxable estate from April 2027, the situation is only likely to worsen.

“Pension schemes often remain unaware of a member’s death immediately, delaying legal and tax processes. This means legal personal representatives will face an even greater burden, consolidating information across multiple pension schemes.

“These delays and added responsibilities compound an already difficult situation. Executors, often close kin or friends, will need to input detailed information, adding complexity to an already time-intensive task. Pension schemes will have to decide whether to continue with discretionary processes for identifying beneficiaries, which can add significant time.

“Moreover, delays may cost families significantly. HMRC proposes charging interest on IHT owed after six months following death, currently at 7.25%. Interest will likely be charged on IHT due from schemes even where delays are not caused by them, quickly mounting up.

“To mitigate these issues, it’s crucial to organise your estate in advance. Utilising trusts and making lifetime gifts can help reduce the complexity and potential tax liabilities. Engaging a financial adviser and having a will in place can also ease the process for executors.”

The Society of Pension Professionals (SPP) set out how investments made by UK pension funds already play a vital role in supporting economic growth and are a major source of long-term investment in the UK economy before going on to state, “…the industry broadly agrees it can still do more and is very much committed to doing so, as evidenced by the generally positive manner in which most of the industry has reacted to Government announcements on the need for an increased commitment to productive finance”.

However, the SPP caution that “ some of the current proposals are likely to have unintended consequences for scheme members, whose interests we believe should be at the heart of any pension policy reforms”

The SPP response further warns that, “…it is unclear if a minimum pension fund scale of £25bn AUM is needed or that scale alone will drive any substantial additional investment …in UK productive assets, let alone deliver better saver returns.”

The SPP suggest that to achieve the Government’s desired policy objective of better saver returns, “Government may wish to consider introducing industry league tables, constructed using a concise set of metrics that holistically assess member outcomes and are calculated by an independent trusted source. This would incentivise providers to aim for the size of AUM that would be most conducive to allocating investments with the most attractive net of fee risk-adjusted returns.”

With regard to exemptions, the SPP states that, “… if the Government decides to proceed with a minimum AUM requirement then it should consider a broad exemption for smaller funds that outperform their larger peers; an exempt growth period during which time any new arrangements can focus on building scale; and exemptions for schemes that serve niche markets such as Sharia compliant default arrangements and CDC schemes.”

If Government proceeds with all or any of the proposals in this consultation, the SPP stresses that, “…the sequencing in which these and other proposals are rolled out will make a very significant impact on overall costs and member experience. The SPP therefore urges policy teams to work through the optimal order of events to avoid duplication of cost and …to provide industry with a clear timetable of such sequencing.”

Sophia Singleton, SPP President, said; “We support the Government’s overarching objectives to both invest more in the UK and boost saver returns. However, we aren’t convinced that these proposals are the best way to achieve this.

“A minimum pension fund scale of £25bn AUM isn’t necessarily going to drive additional investment diversification or deliver better saver returns but could lead to unintended consequences of reducing competition, stifling innovation and potentially disadvantaging some minority groups.

“As we have set out in our response, if the Government does decide to proceed with a minimum AUM requirement then it should be at a much lower level and Government should consider a broad exemption for smaller funds that outperform their larger peers; an exempt growth period during which time any new arrangements can focus on building scale; and exemptions for schemes that serve niche markets such as Sharia compliant default arrangements and CDC schemes.

“We share the Government’s desire to make things better as soon as is practicable but getting these policy decisions right is paramount to achieving this.”

Kate Smith, head of pensions at Aegon, said: “We support the overriding aims of the Government’s pension consolidation and scale proposals including encouraging a wider consideration of investment classes. We particularly support the proposals to enable bulk transfers of members of contract-based pensions without individual consent. We see this as a lynch pin to the success of these proposals and other measures such as the Value for Money Framework as without them, it’s extremely hard to facilitate beneficial transfers en masse. As such this should be a priority for the Government and FCA to enable providers to start rationalising their default fund estates now and improve members’ outcomes.

“However, we do have some major reservations about how radical some of the proposals are and the risks they create. Scale shouldn’t be the ultimate goal, but rather a means to the end. Also, it is the provider or scheme size, not the fund or arrangement size, which is likely to lead to better governance, economies of scale and improved bargaining power on price of investment. Many multi-employer arrangements are already using their scale to meet the government’s objective of investing more in productive assets, including through LTAFs.

“Setting hard and fast rules on the minimum scale to be achieved by multi-employer schemes and a maximum number of defaults per provider by a specified date is extremely ambitious, unduly risky and possibly unachievable due to capacity issues. Consolidation of workplace schemes into multi-employer schemes takes many months, depending on the complexity of the transfer, taking up scarce and valuable resources. This could easily lead to a capacity crunch if too many schemes need to consolidate at the same time.

“In terms of greater investment in UK private assets, it’s also questionable whether there’s enough good quality supply to invest in, something the Government will need to monitor closely to avoid simply inflating prices.

“This isn’t the only pension reform the Government is looking to implement in the next few years. There’s a number of other policy measures on the go, including the Value for Money Framework and small pots consolidation. There’s an urgent need for the Government and regulators to sequence the changes in a way that works best to deliver objectives while also making sense to individuals and avoiding creating inefficiencies or capacity crunches for schemes and providers.

“The measures being considered could fundamentally change the pensions market so that it looks very different in 10 years’ time. This could be welcome if it meets the government’s objective of greater investment in productive assets, including in the UK, and crucially improves members’ outcomes. But there is no guarantee of this. The risk is that scale could be counterproductive if it dampens competition and stifles innovation.”