NAPF chief proposes end to tax-free nest eggs

Anne Robinson, director general of the National Association of Pension Funds, yesterday courted controversy by suggesting that the Government scraps the 25 per cent tax-free lump sum paid to millions of people on retirement, in exchange for restoring tax breaks previously enjoyed by the pension fund industry, writes Nic Cicutti.

She told a packed meeting of delegates in Glasgow yesterday that a deal might be struck with the Government. She said that if fund managers were allowed to claim back the 25 per cent of advanced corporation tax (ACT), against the 20 per cent they claim at present, then the NAPF might give up its support for the tax-free lump sum paid when people take out their pensions.

Restoring ACT back to 25 per cent would enable pension fund managers to boost the value of dividends they receive on their investments by 6.25 per cent. But millions of members of schemes that link pensions paid out to years of service would be badly hit by the move.

The level of ACT that can be reclaimed from the Inland Revenue was reduced by Norman Lamont, then the Chancellor, in 1993. The move, announced in that year's budget, led to billions of pounds being wiped off the value of shares overnight.