Pensions: Anger as savings loophole shut for elderly

Click to follow

Pension specialists attacked Gordon Brown last night after the Chancellor announced a crackdown on alternatively secured pensions (ASPs) that could lead to savers paying tax rates of more than 80 per cent.

The current rules on ASPs were only introduced in April, following years of campaigning by savers who objected to being forced to use pension funds to buy an annuity income before the age of 75. Instead, ASPs enable savers to draw an income directly from their pension funds on retirement, while continuing to invest the funds.

On death, they may also leave unused pension fund money to heirs. While the cash is subject to inheritance tax and is added to any heirs' own pension funds, the option compares favourably to annuities, where any unused savings revert to the insurer paying the income.

However, the Government has become increasingly concerned that large numbers of pension savers plan to use ASPs to pass on pension funds to their dependants.

Treasury ministers have claimed the reforms were only ever intended to benefit small faith groups with specific religious objections to annuities.

Yesterday, the Chancellor said savings left to heirs would from next April be subject to a 70 per cent tax charge in addition to inheritance tax, raising the effective tax rate to 82 per cent on unused pension savings.

In addition, savers will now have to each year withdraw at least 65 per cent of the value of the annuity income their funds would generate, a measure the Treasury hopes will ensure most people with ASPs die with little cash remaining.

Pension experts welcomed the fact the Government had not abolished ASPs altogether - though Mr Brown warned he might yet do so if savers continue to "misuse" the plans - but attacked the new taxation rules.

"Some investors do not believe an annuity gives them best value from their savings," said Andrew Tully, pensions technical manager at Standard Life. "To introduce punitive tax charges on the only alternative that people have after age 75, so soon after introducing the product, is a backwards step."

Looking for credit card or current account deals? Search here