This would therefore risk opening up a blistering row with NHS staff and civil servants at a time when many public services are already stretched to breaking point.
A new pensions death tax
The tax treatment of pensions on death will be viewed by many as low hanging tax fruit ready to be picked.
Under existing rules, it is possible to pass on your retirement pot completely tax-free to your nominated beneficiaries if you die before age 75. If you die after age 75, any inherited pension is taxed in the same way as income.
Crucially, pensions usually don’t form part of people’s estate for inheritance tax purposes.
This is undoubtedly a generous set of rules and something that could easily be reviewed by the new government. However, as is often the case with pensions, applying any new tax on death would come with substantial challenges.
The biggest of those would be around how to treat people who have made decisions about their retirement pot based on the pensions death tax rules as they are today.
There will, for example, be lots of people who chose to transfer DB pensions into a defined contribution scheme in part because they wanted to prioritise passing money on tax efficiently to loved ones.
If all of a sudden that money became subject to a new pensions death tax, those people would, understandably, feel like the rug has been pulled from under them.
It is therefore possible a complicated protection regime would be needed to ensure people are not subject to unfair and arguably retrospective tax measures. This would inevitably reduce the money the Treasury could potentially raise from such a move.
Tom Selby is director of public policy at AJ Bell
