Rowanmoor pensions has criticised the government's decision to levy additional tax charges on scheme pensions and annuities to stop pension funds being passed on after death.
In the consultation paper; ‘Tax relief for pensions: Inheriting tax-relieved pension savings’, the government says scheme pensions and annuities are mainstream products which operate on a risk pooling basis to provide secure income in retirement, and as such it doesn’t want to impose any burdens on the vast majority of schemes where tax relief is being used as intended.
However, it says it has become clear “some in the industry are looking to design products to enable inheritance of tax relieved capital and the government plans to introduce measures to prevent such products from being used to pass down tax-relieved pension savings”.
As a result, the government says it will introduce pension tax and IHT charges on these arrangements which “closely reflect those that will apply to ASP funds that remain on the death of a member”.
In particular, it intends to target circumstances where:
- A member dies with a scheme pension or annuity in payment
- Arrangements have been put in place which seek to increase the rights of another person as a result of the death of a member – except in relation to authorised dependants
- The person who benefits from the increase in rights is connected to the deceased member
But David Seaton, director of Rowanmoor Pensions, says the decision is very disappointing, as he points out yet again the government has left the industry in a position of uncertainty by announcing yet another consultation paper.
He says; “Why, after years of consultation on simplification, can’t the government give us a set of rules by which to work? What is abhorrent to me is the veiled suggestion that the legislation will yet again be retrospective.”
Seaton points out the four-page consultation demonstrates an “unbelievable opposition to people leaving some of their pension fund to their heirs when they die”, but he says as one of the largest problems facing Britain is the lack of saving into pensions, why is the government so worried about wealth being left in such a way.
He says: “Many people would far rather leave their children and grandchildren money tied-up in a pension scheme for their future than cash today in order to give them some security in their old age. What is so wrong with this idea? The existing legislation gives the benefit of any windfall to life assurance companies rather than savers’ families.”
And Seaton is worried the consultation paper, which closes on 13 June 2007, could possibly lead to retrospective legislation which would affect scheme pensions, open annuities and anyone already in such an arrangement.
However, he adds: “Nevertheless, I feel that ASP and scheme pensions still offer a serious alternative. After all the tax charges don’t come into affect until the death of the last dependant post age 75. In most instances a long way off. It is not too hopeful that a future government will not have such an illogical opposition to inherited pensions and reverse these rules.”
But Rachel Vahey, head of pensions development at Aegon Scottish Equitable, says the ability to use small self-administered schemes (Ssas) and self-invested personal pensions (Sipps) to transfer unused funds on death to connected members of the scheme and avoid IHT was an anomaly waiting to be removed.
She says: “The government has had scheme pensions in its sights for some time and we are pleased it is now consulting to create a level playing field with other occupational pension schemes in keeping with the spirit of the single tax regime.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
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