Sean McCann, of advisers NFU Mutual warned Rishi Sunak, the Chancellor, could announce an end to the tax break at the upcoming Autumn Budget on October 27. 

“Earlier this year, the Chancellor froze inheritance tax allowances for five years, a decision that will earn him more money as asset prices rise. If Mr Sunak wanted to cast his net further, he could make the bold decision to make pensions liable for inheritance tax, raising significant sums in the process,” he said. 

Under the current rules, if a pension holder dies before the age of 75, no tax is due at all on their pension. When they die after age 75, the family members or recipients will just pay income tax at their marginal rate and the sum passed on is not liable for inheritance tax. In the case of grandchildren, no income tax may be due, so long as they limit withdrawals to their “personal allowance” – £12,500 in this tax year.

A growing number of pensioners now choose to leave their pension savings until last, burning through cash and Isa money first, both of which are taxable upon death. 

Becky O’Connor of Interactive Investor said any change would be deeply unpopular as the perk had been a crumb of comfort for those who did not have “gold plated” defined benefit pensions. 

“It’s viewed as a kind of conciliatory gesture for an overall less generous type of pension. People knew at least that whatever they haven’t managed to use to fund their own retirements could go to relatives without them having to pay tax on it if they do happen to die before 75,” she said. 

Ms O’Connor said many pensioners currently chose to split their pension pots, setting out one to use for retirement income from one intended as an inheritance pot. Different investment strategies are used for each, usually with a higher growth strategy for the inheritance pot.