New inheritance rules under Labour mean public sector workers will 'escape entirely'

Rachel Reeves's inheritance tax changes will see the public sector escape unscathed. But the shake up from the new Labour Party government Chancellor Ms Reeves, who delivered her Autumn Statement three weeks ago, will see others 'penalised' by HMRC.

Inheritance tax will be charged on defined contribution pension pots, which are widely used in the private sector. The 40 per cent tax charge will apply to retirement incomes left to loved ones by retirees who used their pension pot to buy an annuity.

But public sector workers with defined benefit pensions will escape the tax raid entirely. Ian Cook, of wealth manager Quilter, warned the new rules could have "devastating" consequences and said: "An annuity is purchased to give a guaranteed income for life. But there are scenarios where someone could be asked to pay a cash contribution to pay an inheritance on an income they are yet to receive."

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Mr Cook added that "private sector pensions are being penalised while public sector pensions are being supported by tax changes." Tom McPhail, of pensions consultancy The Lang Cat, said: Members of defined benefit pension schemes could enjoy preferential treatment.

"And this comes on top of inherent advantages of defined benefit schemes, which these days are primarily enjoyed by public sector workers." John O'Connell, chief executive of campaign group the TaxPayers Alliance, said: "Private sector workers are sick of picking up the bill for gold-plated public sector pensions."

"The problem will only become more unsustainable if action is not taken as the contributions made are barely covering the billions needed to fund them." In response to the growing criticism, the Treasury has spoken out to issue a comment.

In an official capacity, a spokesperson for the Treasury said: "It is not the case that these reforms favour the public sector over the private sector."