The Government should review its "onerous" 82% tax on alternatively secured pensions (ASP), according to AJ Bell.
Billy MacKay, marketing director at AJ Bell, believes stock market volatility has strengthened the case for reviewing the range of taxes faced by retirees using ASP, as they are unfair on many investors.
MacKay says a 75-year old male who enters an ASP at age 75 would have received an average income of £102 for every £1,000 invested in October 2007, but this has fallen to just £92 per £1,000 based on rates to be introduced next month.
He argues pensioners are already seeing a substantial loss on their income, through lower ASP rates and the effects of falling equity values on any unsecured pension benefits, and says an 82% tax on death is unfair.
"The Government has an irrational fear that unless you have a penal tax rate, pension savers will use their pension schemes as an inheritance tax avoidance scheme," says MacKay.
"Funds in excess of the lifetime allowance are taxed at 55% and lump sum death benefits at ages younger than 75 are taxed at either 0% or 35%.
"The current economic conditions have dramatically reduced the net wealth of all savers. A tax charge of 55% on lump sum death benefits under ASP would be fairer, more appropriate in the current conditions and would certainly not be open to abuse."
MacKay claims many pension savers are now moving to overseas pension schemes to protect themselves from onerous tax charges, and urges the Government to take action.
"It was inevitable that such a penal tax regime along side current market conditions would distort behaviour," he adds.
"Pension savers are flocking in their droves to overseas pensions schemes, the only way to change this behaviour is to urgently review the taxation rules on death in ASP."
Contact: John Bakie, Tel: 020 7484 9805, e-mail: [email protected]IFAonline
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