House of Lords inquiry:  Pensions IHT proposals “a disaster waiting to happen” says ex-minister

Below you can read a summary of both sessions. To read the full transcripts, please click here.

Reports on other hearings in this inquiry are also available on the CIOT website –

• House of Lords Inquiry: IHT changes create big risks for executors, warn experts (20/10/25) (witnesses included John Bunker for CIOT)
• House of Lords inquiry: Peers hear concerns over inheritance tax changes for farms and businesses (20/10/25) (witnesses included Emma Chamberlain for CIOT)
• House of Lords inquiry: Business and farmers warn of unintended consequences from IHT changes (27/10/25)

Session One – The Pensions Industry

Witnesses:

• Mark Plewes, Head of Pension Technical, WBR Group Limited
• Renny Biggins, Head of Retirement, The Investing and Saving Alliance (TISA)
• David Gallagher, Chair, Association of Pension Lawyers
• Kirsty Cotton, Chair, Pensions Taxation Committee, Association of Consulting Actuaries (ACA).

Practical challenges and administrative burden

Lord Liddle, the Chair of the committee, opened the session by asking why industry stakeholders were unhappy with the initial government proposal that the responsibility for accounting for IHT on unused pensions should rest with pension scheme administrators.

David Gallagher explained, “We see it as an improvement in the proposals for personal representatives to be primarily responsible for reporting and accounting for inheritance tax that may be levied on unused pension funds… It is more consistent with the current system”. He continued that pension funds are currently reported as part of the IHT400 form that personal representatives complete, adding, “It is just that there is no tax then levied normally.”

Gallagher highlighted the complexity arising from individuals often having multiple pension schemes, saying, “The average person has membership of six pension schemes, with rights under those schemes, which could all be under a duty to report. It seems to us much more sensible and practical for HMRC… for the personal representative to be the focal point for those pension schemes to report through.”

Renny Biggins said that “industry was never consulted in the first place about whether pensions should be included within the IHT framework. If we were consulted and listened to, we probably would not be having this discussion today, because I do not think pensions would be going into IHT”. He said TISA strongly believes the inclusion of pensions within IHT is like “trying to hammer a square peg into a round hole… The two things really do not mix, just like oil and water.”

Mark Plewes added, “With the original proposals, all pension scheme administrators would have had to, in every case, provide information on the beneficiaries at an early stage in the information exchange. That in itself was problematic.” He explained that discretionary death benefits often take time to determine, making early reporting unrealistic.

Kirsty Cotton agreed that the six-month deadline is a ‘real problem’. She said that pension schemes are often notified of deaths not through the personal representatives, but through other processes they have, or through other people. “We were really concerned about the process being slowed down, particularly in cases of financial hardship, by needing to locate the PRs before we could make a payment,” she added.

Information sharing and deadlines

Baroness Bowles of Berkhamsted (Lib Dem) was concerned that by passing responsibilities to personal representatives (PRs) rather than pension schemes the proposal was passing them to “someone else who is less capable”.

Plewes said the new proposals require the schemes to provide values to PRs enabling the PRs to say, “Okay, with all of the values together, yes, that is going to lead to a situation where IHT is payable”. He suggested that there will be ‘significant pressure’ from both sides, PRs and Pension Scheme Administrators (PSAs), in terms of information exchange and making sure that deadlines are met.

Biggins highlighted the difficulty for PRs, saying that there are over 3.3 million lost pension pots in the UK alone: “It is going to be extremely challenging for PRs to locate these pots if the deceased person did not even know they had one.” He added that the PR is not going to be able to access the deceased person’s pension dashboard, at least not initially. 

Cotton described the proposed disclosure stages, concluding that “the inheritance tax deadline of broadly six months and the pension scheme processes are incompatible. That is likely to mean that late payment interest will arise by default in a significant number of cases, and that is not good. That is not a well-designed tax system.”

Valuation and liquidity Issues

Valuation of pension assets, especially in self-invested personal pensions (SIPs) and small self-administered schemes (SSASs), was identified as a major challenge. Biggins suggested that for certain types of pension schemes, it is going to be quite hard to realise cash. “I am thinking of commercial property here. There is a very active commercial property market for SIPs and SSASs. Some of these are owned by hundreds of people in the syndicates and things. If that forms the main part of a person’s pension assets, it is going to be very difficult to realise the cash to pay any IHT.”

Lord Leigh of Hurley (Con) wondered about someone owning a private business, “in which valuations can be very much the subject of negotiation… If that takes more than six months, the estate suffers, does it? How do you see it working”.

Biggins stated, “You can do it on a best endeavours basis, where you will be providing a valuation that you think is the most appropriate. In order to meet that deadline, it may well mean that that is not an up-to-date valuation.”

Asked what happens if HMRC does not accept the PR’s estimate of valuation, Gallagher suggested that that is ‘one big challenge’, that the Association of Pension Lawyers and HMRC have had with these proposed changes.

Lord Altrincham (Con) sought the panel's views on a situation where PRs struggle to pay IHT on assets they don't control, saying “one potential solution is for the pension beneficiaries to pay or to ask the scheme to pay any IHT instead”. He asked what practical problems this might create.

Cotton responded that under the current proposal, it is ‘unclear’ at what point payment can be requested and whether it can be requested before probate. If the pension scheme has already paid the death benefit out, they do not have the funds to pay the inheritance tax any more. Gallagher added that the amount of inheritance tax could change after that payment has been made because of changes in value for other assets within the estate.

Biggins explained that PRs could ask the scheme to pay, but they could not force it to do so at the moment. If a scheme is going to be making payment the process is such that going over six months and accruing late payment interest is likely.

Baroness Fairhead (Crossbencher) was shocked that payment is required in six months, “when it is often two years or more before probate is granted. How are the PRs expected to make the payment? I understand why the PSAs do not want that obligation and the penalties, but how on earth can the PRs, when they do not control the money and have no ability to force beneficiaries to even reply?”

“It is incredibly challenging,” acknowledged Biggins. “The whole inclusion of pensions within IHT is going to be a bumpy ride.”

Beneficiaries conflicts

The panel discussed the frequent divergence between pension beneficiaries and estate beneficiaries. Biggins estimated, “It is about 40% of cases… where the beneficiary might well be different to the main estate.”

Cotton explained the anomaly between defined benefit (DB) and defined contribution (DC) pensions and said, “Defined benefits are outside inheritance tax. They will still be outside inheritance tax. Our understanding is that… regardless of how you use your defined contribution fund, whether you take it as a lump sum or use it to buy a pension, that pot will still be subject to inheritance tax.”

Plewes explained that defined benefit pensions are more likely to be paid to a dependant and are more likely therefore, when the dependant dies, to finish at that point: “There is not this multi-generational passing on through drawdown that there otherwise would be.”

Baroness Bowles later returned to the notion of the conflict of interest between beneficiaries under the will and beneficiaries under the pension, saying she has personal experience of this and knows “that it is not all sweetness and light”. This will become more frequent, she worried. She wondered whether this left the discretionary trust model unsustainable.

This is a really important point, said Gallagher. Private sector occupational schemes are all built around the discretionary trust model, he observed. Cotton said that a pension scheme is not just to provide a retirement income to the member, but also to protect their dependants on death. The ability of trustees to take a discretionary decision “means that they can override an out-of-date nomination form to make sure that the right people, as far as they can judge, get that protection. It is not solely for inheritance tax.”

Implementation timeline and support for personal representatives

The proposed start date of April 2027 was questioned, and what guidance and support is required from HMRC ahead of these changes.

Gallagher remarked, “There is a lot that has to get done by April 2027. I will add one point on the implementation dates… The government’s estimates are that it is over £30,000 of tax in each case where tax might be collected here. That is going to place families in unimaginably difficult situations where they have a loved one who is seriously ill. There is a point in the calendar at which there is over £30,000 of impact to the family depending on whether the date of death is before or after that one day.”

Biggins echoed the concern and recommended a delay “to enable the policy to be smoothed out and all people’s responsibilities and roles understood and so that beneficiaries and the members understand the policy as well.” On HMRC’s guidance, he suggested that some sort of centralised database or access point to help navigate through the whole process of IHT is going to be crucial for lay PRs.

Cotton also advocated for a year delay, while Plewes voiced his concerns about the costs and how it impacts systems and training.

Plewes emphasised that personal representatives will often be a widow or widower. “They have no idea about the pensions, are not financially savvy and will be classed as a vulnerable customer. They have been recently bereaved and will need significant amounts of support to help them through this process and to allow them to understand things such as the information exchange regulations.”

Lord Leigh asked whether we might see “a growth in a mini-industry of people who specialise in advising PRs on small and medium-sized estates”.

Plewes thought we would. Gallagher said he had heard that “people who specialise in personal representative work as professionals are [already] getting pressure from their insurers as to defining the scope of their liabilities and to being careful about taking on pension responsibilities.”

Biggins warned of the risk of scams: “We need to be mindful that we are creating this need for support, but scammers will be looking to exploit that.”

Alternative approach

Biggins advocated for a standalone tax, saying that TISA had conducted some research with Oxford Economics earlier this year. “We showed that, through a standalone tax, you could still generate exactly the same amount of tax revenue as what is being expected to be generated through including pensions in IHT. It would be a much simpler way to do this, much easier to understand and much easier to implement. It allows people to plan with certainty for their retirements as well.”

Session Two – Former Ministers

• Sir Steve Webb, Partner, Lane Clark & Peacock LLP
• Baroness Altmann CBE, Member of the House of Lords (non-affiliated)

Burden on personal representatives

The Chair of the committee opened the session by inviting the panel to comment on the practicality of the government’s proposals.

Sir Steve Webb, who was pensions minister in the 2010-15 coalition government, highlighted the real-world challenges faced by PRs, stating, “We talk in abstract terms about personal representatives, but often it is a grieving person… this is someone who the industry would describe as vulnerable and would have processes in place to deal with. We are going to place a huge responsibility on them.”

Webb acknowledged the logic behind centralising information gathering but questioned the burden placed on individuals and said, “For me, the less we can require of the personal representative in this world, the better.” He advocated an approach similar to submitting a tax return: “I gather information that HMRC may not have—perhaps tax information, information about untaxed income that they do not know about. I report it to them and then they work everything out. It seems to me that we could have a situation where people simply—“simply” is pushing it—assembled the information, as best they could, submitted it and then HMRC contacted all the pension schemes and said, “You need to pay this amount. Here is how to pay it”. All that could be automated.”

“I feel I cannot warn strongly enough that this is a disaster waiting to happen, but we still have time to rethink the plans”, warned Baroness Altmann, who succeeded Webb as pensions minister in 2015. She emphasised the risks for non-spouse PRs, suggesting that: “Children or relatives of someone who has passed away… will be in for a terrible shock and a significant potential cost and liability upon themselves as a result of what is currently proposed.”

Webb predicted that on 6 April 2027, “journalists will start having to do this for their loved ones, realise it is horrific, will kick up a stuff and then it will all be reformed”.

Complexity and risks for ordinary savers

Both witnesses expressed concern about the complexity and risks for ordinary savers and their families. Altmann argued that: “There will be millions more people who have modest pots, who will be caught up with this, possibly in a way that does not even incur a tax charge but incurs huge costs and work in establishing that they do not have a liability.”

She described the daunting task of locating all pension entitlements: “The way that the legislation seems to want to work would mean that someone who may have had nothing to do with pensions in their whole life, who certainly does not understand the jargon, the language and the processes around pensions and who may not have their own pension, will be having to try to find all the pension entitlements that their loved one or whoever it is may have had, when that person themselves did not even know about it, and may have to sign a form saying that they have found all the pensions or something of that nature in order to finalise the estate.”

The Baroness acknowledged the main reason that the government want to do this as “they do not like the idea of very wealthy people passing on large pension funds tax-free as a kind of IHT avoidance mechanism”. However, she suggested an alternative approach to tackling this would be “ an unused pension levy, whether it is 10%, 15%, or 20%—you can pick a number—that applies to all pensions, or you could have a de minimis above which it applies. There would be no complications as far as the PRs are concerned.” She believed that such a system could be simpler and more effective, and raise more money for the government. She was disappointed that the government had ruled it out.

The pensions dashboard and reporting deadlines

The panel discussed the role of the pensions dashboard in helping PRs locate pension entitlements.

Webb said the dashboard “ought to be the answer to the question, “I have to sort out someone’s estate. How do I find all their pensions?” For this reason “third-party access should be first on the list, so that somebody other than the deceased can access it”. Also, “we need to have pensions that have started to be drawn down on the dashboard. At the moment, dashboards are for workers to look at their futures. When you become a pensioner, your pension comes off the dashboard. If it was on, that would make a huge difference to people.”

Baroness Altmann said that this would not be ready by 2027, adding that: “If this goes ahead as it is currently proposed, the idea of having a longer period by which you need to report will be very important.” She advocated for a longer reporting period, saying, “given the way pension schemes operate and knowing how processes can go. It is almost impossible to imagine most non-professional and non-experienced PRs being able to do all this within six months and avoid an interest charge.”

Liquidity challenges

Lord Pitkeathley of Camden Town (Lab) asked how personal representatives can manage liquidity challenges and the support they can be given.

Webb proposed simplifying the process and said, “Once an amount is due and the pension scheme knows its share of the IHT, I cannot see why that is not just deducted automatically. Let us try to remove as many complications, options and variations. The beauty of that is the personal representative then knows that, if the pension has been paid out, it must have had the IHT paid.”

Moreover, he suggested reforms to probate timing, stating, “You could fire the probate starting gun straightaway, get your probate application in and have all the probate process gone through and completed. Then, when everything else is done, you could tell the probate people that everything else is sorted, and probate could be immediately granted.”

Altmann thought the liquidity issue another potential risk for PRs because they have no control over the pension. “It may be that the only other asset is a house. They cannot get money out of either of those until they have probate. They cannot sell the house until they have probate and they cannot, presumably, liquidate the pension before that. Therefore, they will incur an interest charge.”

The Baroness also voiced concerns about minors or mentally incapacitated beneficiaries, arguing that there is no provision in the legislation for those individuals to be able to instruct.

Impact on pension planning and treatment of different pension types

Altmann spoke of her “serious concerns” that the policy would “undermine the future of DC pensions. It will make it likely that there is less money going in, more money coming out earlier than it should and less money staying in, all of which undermine the government’s objectives for the future of pensions and for DC in particular.”

The overriding incentive would now be “not to keep money in your pensions for later life, which the current system encourages, but to take money out as soon as you can for fear that you might die,” she warned.

In regard to inconsistencies in the treatment of different pension types, Webb explained, “If you die when you are an active member, any lump sum benefit or pension is out of IHT. That is one good thing that HMRC has changed in the consultation. That is now out… If you die having left the company but not retired, you are what is called a deferred member. Many pension schemes pay a lump sum. That is in. As we understand it, that will be subject to inheritance tax. If you die once you have started drawing the pension and it is just a regular pension, that is not in inheritance tax.”

Baroness Altmann believed that the least affected would be people with a DB pension that passes on to a spouse or dependant.

Baroness Bowles intervened and said, “It is not a complete tax dodge to have a big pension fund and to have not used it. The recipients of that will, unless they are exempt, pay tax at their marginal rate. You have tax relief on the way in and then you pay tax when you draw it down, whether you are the pensioner or the beneficiary. “Tax relief in, tax paid later” still applies. It is not really a dodge”. Webb answered that it is seen as an “IHT dodge rather than an income tax dodge”.

Government engagement and wider ramifications

Asked if the government engaged ‘effectively’ with stakeholders in shaping its policy, both panellists believed that it had not. Altmann said “it would be very hard for them to engage, with the personal representatives who we are all very concerned about. They do not know what is coming”.

Webb expressed sympathy for HMRC: “To be fair to them, they have engaged a lot with the industry. The July 2025 changes, including excluding death-in-service benefits, which was good, indicate that they are willing to change things.”

On the impact assessment, Webb argued that “everybody who is a personal representative in respect of somebody who has any pension at all, which is most people in a world of auto-enrolment, will have to go through some of this stuff, even if the answer is zero at the end.”

The second session concluded with reflections on the wider ramifications of the policy, with Altmann warning, “It is not just affected as far as money is concerned. [People] will be affected because they have to find pension entitlements, which the person themselves may not even have known about. They will be responsible for having found them or not having found them.”

Webb predicted a growing impact, with modelling suggesting “that this is going to be a multi-billion pound revenue spinner in years to come. It might be 50,000 deaths a year today, but it will not be 50,000 deaths a year in five years’ time or 10 years’ time.”