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Rachel Reeves Hit Your Pension for IHT at the same time Politicians Want You to Work Longer

ended 15. August 2025

Here’s the irony: for years, politicians have been urging us to keep working later in life to help solve the UK’s labour shortages, with early retirement often painted as a drag on the economy.

Seemingly we were unpatriotic for wanting to retire early and enjoy our hard earned money. Politicians on both sides of the fence label those people as economic inactive. 

Yet now, Chancellor Rachel Reeves plans to bring unused pension pots into the Inheritance Tax net from April 2027 — meaning that working longer and saving more could just mean a bigger tax bill for your family when you die.

So, should we keep slogging away into our late 60s, supposedl for the benefi of the country, if a large slice of our hard-earned pension will end up with the Treasury anyway?

We’re looking for comments from financial planners, tax specialists, and economists on:

Will this discourage people from working longer?

Could this create perverse incentives to retire earlier or spend pensions sooner?

How should savers respond?

4 responses from the Newspage community

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Scott GallacherVerified
Director at Rowley Turton
"Work Longer, Pay More? No Thanks."

It’s classic mixed messages from those supposedly in charge — telling us to work longer to fix staff shortages, then hitting our 'unused' pensions with a potential 64% combined inheritance and income tax bill if we do. That’s hardly an incentive to keep going. I suspect we’ll see many more people bow out early, just as we saw when lifetime allowance pension rules effectively drove doctors and consultants into retirement and out of the NHS.

Yet another potential own goal from the government.
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Rob MansfieldVerified
Independent Financial Advisor at Rootes Wealth Management
It does feel like people are being squeezed every which way. We've seen previously that doctors will take on less work if the tax penalty is too high and so the government has to be careful that it funds what it wants to fund but doesn't discourage people going about their business. That requires strategic thinking but the past couple of governments have seemed to be much more short termist and reactionary rather than having a plan.
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David StirlingVerified
Independent Financial Adviser at Mint Wealth
The working public have sleepwalked into becoming financial slaves. With the advent of auto-enrollment we were pushed into taking out NEST pensions by the government with employers also forced to contribute. Roll on a few years and the government are now pulling moves to change the rules - between taking the cash out for UK shares, bringing the pension pots into IHT calculations and considering doing away with tax-free cash. We have literally been saving to pay extra taxes down the line.
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Riz MalikVerified
Independent Financial Adviser at R3 Wealth
At this rate, many will soon have a photo of HMRC on their desks instead of their loved ones because it feels like they’re working just to pay them. Too many see inheritance tax as a distant issue, but I often ask clients what date they plan to die and it shifts their thinking fast. Tackle it early and you stay in control. Don't, and HMRC are in control. It's your choice.