Pensions expert blasts 'shocking' policy as households 'lose £32,725 pay boost'
EXCLUSIVE: He said key reforms are needed to make the system fairer.
A pensions expert has called for a £33,000 increase to a tax-free allowance to make the system fairer and easier to understand.
A person can currently take up to £268,275 as a tax-free lump sum from their pension.
But Gianpaolo Mantini, partner at Saltus, told Express.co.uk he would like to see this increase.
He explained: "There are some key reforms that would make the system fairer changing the tax-free element from £268,275 to a more easily remembered £300,000 and the removal of death in service benefits from the lifetime allowance calculation.
"It is shocking that an employee benefit designed to provide financial security in the event of death can be taxed higher than the rate for inheritance tax."
A death in service benefit is combined with any pension pot, with the excess above the lump sum death benefit allowance (LSDBA) of £1,073,100 taxed at the marginal rate of the recipient.
This means that if a recipient earns £50,000 a year and their combined pension and death in service benefit results in a £100,000 payment above the LSDBA, they would pay 40 percent tax on the first £50,000, 60 percent on the next £25,000 as their personal allowance has been lost, and 45 percent on the last £25,000.
Meanwhile, inheritance tax is charged at 40 percent on any inherited assets above a person's nil-rate allowances.
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Pensions are not considered to be part of a person's estate for inheritance tax purposes.
An individual has a nil-rate threshold for inheritance tax of up to £325,000 and this can be passed on to a spouse or civil partner.
There were rumours the Conservative Party manifesto would include a policy to scrap inheritance tax but this was not included.
Reform UK has set out plans to increase the threshold for paying the tax so all estates worth under £2million would be exempt.
The party led by Nigel Farage is also planning to halve the tax rate for the current 40 percent to 20 percent with an "option to donate to charity instead".
The party said this would mean some 98 percent of estates would be lifted out of paying the tax altogether.
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