Soon-to-be-ex-Chancellor Rachel Reeves puts in a shift at McDonald’s (Image: Getty)

Reeves has wreaked enough havoc for one lifetime. She torched Labour’s popularity by axing the winter fuel payment, destroyed the jobs prospects of a generation with her £25billion “jobs tax”, and killed growth with two nightmare Budgets. Yet one of her worst ideas hasn’t even landed yet. From April 6, 2027, unused direct contribution pension pots will be added to the value of your estate and may become liable for inheritance tax (IHT). Pension experts have branded the changes a “nightmare” that will leave grieving families trapped in a bureaucratic nightmare when they should be mourning their loved ones.

Until now, defined contribution pensions, the type invested in the stock market, could be inherited free of IHT. Reeves has torn up the rulebook. From next April, many ordinary families could face a 40% IHT bill on any unused pot. If somebody dies after 75, beneficiaries may also have to pay income tax on withdrawals too. The tax bill is bad enough. The paperwork could be even worse. Now former pensions minister Baroness Ros Altmann is urgently warning of the financial and practical dangers millions of families now face: “The proposals are a nightmare, are too complex and place unrealistic demands on those responsible for administering estates.”

Altmann also questioned how executors will calculate tax on pension pots they may not even know exist. “This policy is fraught with dangers. How on earth can people actually do this if they don’t know anything about pensions?” It’s also a betrayal of savers. For years, families were encouraged to build pension savings because they sat outside IHT. Altmann warned: “You cannot encourage people to build pension wealth for later life and then penalise them after they do.” But that’s exactly what Reeves is doing.

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Altmann also fears people will start emptying pension pots early simply to avoid a future tax bill, undermining decades of government policy encouraging retirement saving. It could also leave them short of funds if they need social care in later life.

Lawyers are equally alarmed. Sarah Conner, partner at Hodge Jones & Allen, warned: “Levying IHT on unused pensions is going to cause chaos for executors when dealing with a deceased estate, as they will be responsible for paying IHT on pensions they do not control.”

Some executors won’t even know every pension exists. Millions have built up multiple workplace pots over decades. Tracking them all down could take ages. They only have six months to find them and pay the IHT bill. Even if they haven’t collected all the money.

Conner warned the burden could become so great that people simply refuse to act as executors. It will cost families a fortune too, with leftover pension pots going to HMRC rather than loved ones. The levy could be brutal: “Some estates could suffer a tax rate as high as 67%.”

Naomi Neville, estate planning specialist at Irwin Mitchell, urged families to act now to protect themselves. “Develop a clear picture of pension holdings, review beneficiary nominations and ensure pension arrangements are aligned with wills.”

Reeves may soon be out of Number 11, but this mess will live on long after she’s gone. Families can’t afford to wait and hope Andy Burnham scraps the plans. They need to track down every pension, update beneficiary nominations, make sure wills and pension paperwork match, and tell executors where everything is kept. And hope that a future chancellor will scrap this financial and administrative nightmare.

It’s yet another disastrous legacy from Rachel Reeves. One that grieving families will be shouldering years or even decades after she’s left office. The risk is that Burnham’s pick as next chancellor will be even worse. Hard to imagine, but in this Labour Party, it’s distinctly possible.