Your Money: Royals take risk on tax

HOW many of us would volunteer to pay taxes, however many points it bought us in the popularity stakes?

The Royal Family cannot win on this score. Once their finances start to come under the microscope, they are caught between those who cling to the pomp and splendour of the monarchy and those who hanker for a sovereign on a bicycle.

Neither wing will be happy with the compromise that allows the Queen to keep her lavish lifestyle, the secrecy about her personal wealth, and a privileged position when it comes to passing that wealth on to her successor.

It is easy to draw distinctions between the tax regime the rest of us endure and the one voluntarily taken on by the Queen and Prince Charles. Although ironically Prince Charles will end up paying about the same amount when he moves from voluntarily paying a flat rate of 25 per cent on his earnings from the Duchy of Cornwall to claiming expenses and paying full taxes on the residue.

But both the Prince of Wales and the Queen have taken a risk in stepping into the Inland Revenue's pit.

The top tax rate is currently 40 per cent. But a future government could easily impose steeper taxes on the top incomes enjoyed by the Royals - and it would be too late to turn back then.

THE Pru is Britain's largest pension provider, so when it stirs, it is worth taking note. And last week's small tremors could signal an earthquake ahead in the pensions industry.

The Pru came out with a bland statement about reorientating its pensions away from distinct products wrapped in an inpenetrable fog of technical jargon, towards a customer-centred approach with the flexibility we need - such as the option to raise or lower payments, or halt them for a while; or switch payments from a personal pension into a top-up scheme on joining a company pension scheme.

Behind this worthy move - only remarkable because it is not the norm already - there has been a tremendous tussle with Inland Revenue rules and computer systems.

But initially the new pensions regime will only apply to the Pru's own salesmen (the man from the Pru may be a woman and probably does not ride a bike).

Anyone who buys a Pru pension from an independent financial adviser will get the old, less flexible model.

The reason for this is that advisers have to be rewarded by commission payments at the outset, which skew the way the pensions are constructed. While the Pru can change the mix between pay and commission for its own workers, it is more wary about breaking the mould when it comes to selling through independents, as there is competition from other companies.

This leads to the novel situation where given a Pru policy fits the bill, it will be better to buy from a tied salesman than an independent - contrary to all the usual advice.

When the Pru has introduced improvements in its pensions - such as the freedom to take a break of up to five years without penalty, or get the fund value returned to the estate on death rather than just the premiums - it has applied the terms to all customers, old and new.

It will be more difficult to extend the user-friendly pensions world to Pru customers who arrive via an intermediary, if the pernicious commissions system continues to hold sway.

The Pru is even talking about loosening the endowment policy to make it more flexible. These policies give poor value if they do not run their full course - up to 25 years. The competition from unit trust and investment trust savings schemes, especially if shielded from tax in a personal equity plan, means endowments have to change.

THE current 40th issue of National Savings Certificates is advertised as paying a tax-free return of 5.75 per cent if they are held for five years. The usual assumption is that they provide poor value if cashed in early. But with this issue, you still get 4 per cent after the first year - a pretty attractive deal when you look at building societies after the latest round of cuts.

After the second year, the return is 4.4 per cent, rising to 5.75 per cent in year three, 6.75 per cent and 7.9 per cent in the final year to give the overall compound return of 5.75 per cent.

In comparison, the building society rates look pretty puny. The Halifax, for instance pays 3.45 per cent net of basic rate tax on pounds 5,000 on instant access, and 3.56 per cent on 90 days' notice.