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My godmother, a sprightly 77-year-old, died very suddenly last week. Her passing was so unexpected that when the news first reached me, I felt sure it was a scam. Alas.
As we slowly adjust to life without her, there is some comfort that it all happened so quickly. Survived by my godfather, she has also been spared the trauma of dealing with the administrative and financial aftermath had he died first. It turns out this is something that had worried her in her later years, and finding that out has made me even sadder.
With major changes to the inheritance tax treatment of pensions on the horizon, I fear the grim complexity of sorting out a deceased person’s financial affairs while you are grieving can only get worse.
My FT colleague Miranda Green used the term “Sadmin” to describe it. We received an overwhelming response to a podcast we made last year about her protracted struggle with financial providers to settle her late father’s estate.
One detail that will forever stick in my mind is a phone call she made informing her dad’s private pension provider of his death, which resulted in her being quizzed about an apparent overpayment. So much for empathy! “You do feel that you’re talking to a faceless bureaucracy that no longer cares because that person isn’t going to take their business elsewhere,” she reflected at the time.
Firms urgently need to pull their socks up, but so too does the government. Grieving families have been navigating long delays in the probate system since the pandemic, and more estates are being drawn into the inheritance tax net. HMRC reported an 11 per cent year-on-year increase in IHT receipts this week, and this is set to rise substantially in 2027, when IHT will be applied to inherited pension pots.
As a consultation on the measures ended this week, financial providers branded the proposals “unworkable” claiming they will lead to increased costs and severe delays in money being paid to bereaved families, even in cases where no IHT is due.
The key sticking point they are urging the Treasury to rethink is who pays the IHT bill. Under the current proposals, pension schemes would be responsible for paying any IHT due directly to HMRC before any funds are distributed. Yet in order to calculate any tax liability, providers would have to work with executors to find out the value of other pensions and the person’s wider estate, and how to apportion the nil rate band.
Any readers who have ever tried communicating with a pension company will know that the speed of response to the most basic of queries is often glacial. So what are the chances of pension schemes correctly calculating IHT liability within six months of a person’s death, after which late interest payments will be incurred?
The Pensions and Lifetime Savings Association has sensibly proposed that estates should be responsible for paying the tax, with an extended 12- month period to settle before any interest is charged, to give families and pension schemes time to work out the calculations.
It has also raised important questions about how IHT will be applied to death-in-service payments. A form of life insurance for employees, I have previously urged readers to ask HR departments if such benefits are linked to a pension scheme, and thus potentially subject to IHT in future (if yours are, ask what your firm intends to do about this before 2027).
An awful lot of misery and additional distress could be avoided if the government listens and responds to these concerns. But what about the steps we can personally take to prepare for the inevitable and make things easier for those we leave behind?
If you enjoy reading personal finance articles in the FT, chances are you are the “money person” in your household. I certainly am — so it doesn’t have to be divided along gender lines — but advisers tell me it frequently is. Nor is this issue confined solely to older generations. I have a great many friends — including same sex couples — who are happy to outsource virtually all financial management to their other half.
This risks storing up big problems in the future if the “money person” dies first — and even more so if the couple were not married or in a civil partnership and thus unable to share tax allowances and defer IHT bills until the second death.
If the money person was also the biggest earner, assets such as pensions are likely to have been built up in their sole name. IHT changes will require pension providers to be informed promptly of a person’s death — but what if a surviving spouse does not know about them?
A decade of auto enrolment means people have pension pots from previous jobs all over the place, resulting in an estimated £31bn worth of “lost” pensions — a problem that can only compound.
I did an item about this on daytime TV two weeks ago, and was bombarded with messages on social media from widowed women telling me of their struggle to find old pensions and life insurance policies they thought their husbands had taken out. Many messages were tinged with a sense of shame about their inability to navigate the system and track down this much-needed money. Heartbreaking.
Free digital services such as Gretel are making this slightly easier, but the industry needs to take much better ownership of this problem.
As do we all, of course. How prepared would your partner be if the worst happened, or if you were suddenly taken ill and unable to manage the finances? It’s easier if you have a financial adviser, but often, they will only have a relationship with the “financial lead” of the family.
A recent study by Boring Money found that women over 65 who display at least one “vulnerable” characteristic were the least satisfied with financial advice — the key shortcoming being clarity and communication.
As well as sorting the basics such as your wills, lasting powers of attorney and life insurance, the digital nature of modern finances is another problem. Miranda had several Tesco bags full of old paperwork to help piece together her father’s affairs. If your finances are in the cloud, how much more difficult is this process going to be?
I recommend a workbook called I’m Dead: Now What? that you can buy online and fill in with helpful instructions about all kinds of things (not just money) that will make things easier for those you leave behind.
Having conversations with our nearest and dearest about these things while we are still alive is awkward. But the alternative is much worse.
Claer Barrett is the FT’s consumer editor and author of the FT’s Sort Your Financial Life Out newsletter series; claer.barrett@ft.com; Instagram and TikTok @ClaerB
