Government plan to eliminate ‘death tax’ on pension pots aimed at grey voters
Although George Osborne’s plan to eradicate the 55 per cent tax on pension pots after death is positive news – as in my opinion, people should be permitted to pass down their savings to loved ones without hefty tax liabilities – and it has been hitting the headlines in a major way, the small print presents these government’s proposal in a different light.
Following previous announcements from the Chancellor with regards to eliminating restrictions on pensions access, amongst other initiatives, this decision looks to me as though the government is looking for ‘grey vote’-winning policies ahead of the general election.Let’s look a bit closer at the details: The tax-free policy on pensions is only applicable if the person passes away before reaching the age of 75. As life expectancy in the UK is increasing all the time, currently at an average 81 years, the number of people that will be able to take advantage of Mr Osborne’s plan will be comparatively low. Especially as after the age of 50, life expectancy increases another 14.2 per cent on average!
Coupled with this is the fact that the so-called death tax is being substituted by income tax, which means that the middle classes will inevitably bear the brunt as many more are driven into the 45 per cent higher rate tax bracket.
Final salary schemes will however not be affected by these modifications, which are still experiencing less pensions increases, a higher retirement age and pension reductions for spouses.
The level of change within the pensions sector has been ongoing for a number of years, and to my mind it appears as though it is fighting to keep pace with the modifications. I believe the industry needs some time to acclimatise to ensure that savers don’t lose confidence and the standard of advice offered by pensions professionals doesn’t diminish over time.
Changes such as this latest announcement by George Osborne are also extremely costly to pension providers, as they are required to update their systems, retrain employees and supply new pensions information literature.
Scrapping the death tax, in my view, is just another way of reaching the older voter in preparation for the 2015 election, as they are the ones who are increasingly likely to vote.
However, it must be remembered that increasing the retirement age and lessening the amount that can be drawn from pension pots as a tax-free lump sum is, of course, the aspiration of all the political parties.