Pension bodies are urging HMRC to make changes to the way it is planning to collect IHT on unspent DC pension funds, warning current proposals risk creating delays and confusion for grieving families.
Both the Society of Pension Professionals (SPP) and the Pensions Administration Standards Association (PASA) have responded to HMRC technical consolation to these rules, ahead of pensions coming into the IHT framework next April.
The SPP warns that the current approach places unrealistic obligations on pension schemes. It also highlights a range of operational, legal and practical concerns it says must be addressed before the new regime is introduced.
Among the range of key issues highlighted, the SPP says pension scheme administrators and insurers cannot reasonably be expected to determine whether beneficiaries qualify for IHT exemptions, particularly where complex long-term residency rules apply.
Instead, the SPP believes this responsibility should sit with personal representatives, who are already responsible for assessing the wider estate.
The SPP is also calling for a significant simplification of reporting requirements, questioning why schemes should be required to provide information on benefits that fall entirely outside the scope of IHT and highlighting areas where reporting obligations appear inconsistent or duplicative.
The SPP’s consultation response further warns that several proposed deadlines are too restrictive and fail to reflect the practical realities of verifying identities, gathering information and obtaining valuations.
In addition, the SPP has identified a number of technical drafting issues and operational uncertainties, including concerns around withholding notices, payment notice processes, overseas estates, the treatment of joint personal representatives and the data protection implications and potential complications that could arise in cases of intestacy.
Meanwhile PASA agrees that the proposed timelines creates operation risks and could lead to delays when it comes to settling estates and paying inheritance to families. It points out that pension scheme administrators need sufficient time to update systems and processes, amend communications, train staff and align third-party arrangements.
It says guidance issued close to April 2027 could lead to inconsistent interpretation, operational errors and delays in paying benefits to bereaved families
It also adds that the current framework relies heavily on declarations and self-certified information. It says this introduces additional evidential risk, particularly given the increasing prevalence of fraud relating to death notifications and benefit claims.
PASA adds that the proposed timelines assume a linear sequence of events. In practice, it points out that death benefit administration is often iterative, overlapping and dependent on incomplete or evolving information
It also says that the regulations, technical note and supporting process materials aren’t fully aligned. With its response adding that “greater consistency is needed to reduce uncertainty and support effective implementation”.
SPP chair of the legislation committee Shayala McRae adds: “Although HMRC has made good progress in engaging with industry, further refinements are needed to ensure the system is workable, proportionate and does not create unnecessary delays for bereaved families.
“The pensions industry is committed to helping make government reforms work, but the current proposals place significant responsibilities on schemes that are simply not practical in many cases. Determining inheritance tax exemptions often requires information that pension schemes simply do not have and cannot reasonably obtain.
“The SPP’s response therefore highlights a number of ways in which a framework that is both operationally realistic and effective can be delivered.”
In it response to HMRC PASA adds: “Overall, further clarity and comprehensive supporting guidance will be essential to ensure the framework is deliverable and supports good member and beneficiary outcomes. Without this, there’s a risk the new requirements increase operational complexity and delay benefit payments without delivering corresponding improvements in outcomes.”
