The Revenue has said that plans by one insurance company, Provident Life, to offer a new type of managed annuity contract went against the spirit of the present tax rules. Its decision deals a blow to hundreds of people who have poured more than pounds 100m into Equitable Life, which began to market its own managed annuities in October.
Equitable Life said this week that it would be holding talks with the Revenue to try to save its plan. 'We regret the decision, based, apparently, on a technicality. The only losers are members of the public approaching retirement,' it explained. 'We will contest the Revenue's approach.'
Equitable is ceasing to sell new plans, but in the meantime it will pay income to clients on the basis of its existing agreement.
Annuities pay an income for life in return for a lump sum. The level of annuity reflects the interest paid on gilts, currently about 6 per cent. In effect, anyone buying an annuity now locks into that rate for the rest of their lives.
Provident Life and Equitable Life tried to get round this problem by offering a managed option - instead of having to buy an immediate annuity, a client can withdraw income, leaving the rest to be invested. Because returns on investments are higher than annuity rates, savers could expect both an immediate income and their investment to grow. But a future collapse in the stock market could wipe out the value of pension investments.
To qualify for tax relief, pension annuities must be safe, regular and for life. To be offered to money-purchase occupational schemes, they need approval from the Pensions Schemes Office (PSO).
John Moret, pensions manager at Provident, said: 'Our understanding of the PSO's current stance is that it is challenging specific features of our product, rather than the basic concept. We are taking legal advice.'Reuse content