The National Association of Pension Funds is alarmed by speculation that the Chancellor will seek to raise revenue from pension schemes in this month's Budget. Pension funds were badly hit by a change to advance corporation tax in March, which reduced the tax credit they receive on dividend income.
David Morgan, chairman of the NAPF's parliamentary committee, told the association's autumn conference in London that the ACT change had 'damaged the already fragile partnership between the state and the private sector on pensions' at a time when the Government was trying to encourage more private provision.
He said the ACT change might have been difficult to understand, 'but it was a far larger and more widespread raid on UK pension funds than Maxwell achieved'.
Many of the five million people who had started personal pensions, and another two million in additional voluntary contribution or money purchase schemes, were victims of a government confidence trick, Mr Morgan said.
'Only a few years after extensively promoting money purchase schemes and tax-free personal pensions, the Government changed the tax rules,' he declared. 'The ACT change directly reduced their pensions and will affect their living standards throughout the whole of their retirement.'
Members of salary-related pension schemes would also suffer because the cost of the change had reduced the money available for discretionary pension increases.
Philip Cockbain, a partner of R Watson & Sons, the actuarial consultancy, said net tax receipts would be largely offset by corporation tax relief claimed by employers on increased pension contributions.
Peter Stanyer, investment director of British Rail Pension Trustee Company, called lower ACT rebates 'a cunning plan to deprive grannies of income, to enrich lawyers and investment bankers (and) to leave the Treasury peanuts'.
He predicted that companies could soon start issuing interest- bearing equity securities as a device to allow pension funds to avoid the harsher taxation of dividend income. This would transfer income from pensioners to 'financial parasites', the professional intermediaries who could exploit tax anomalies.Reuse content