Member Article

End of the death tax

Following Chancellor George Osborne’s announcement that the 55% tax on inherited pensions is to be abolished, Kay Ingram, divisional director individual savings and investments, at financial planners LEBC broadly welcome the end of “a discriminatory tax on the over 75s”.

“If younger generations who inherit these untouched funds can retain them on a tax free basis until they start to take income themselves from the funds then it will help to bridge the gap between pension rich baby boomers and their children and grandchildren who are less well placed to fund their own retirement, given the high cost of education and student debt and house purchase.”

Ingram warned however that the principle purpose of any pension fund is the provision of a lifetime income for the pension holder and their spouse/ partner. “The change in rules will not make the problem of sustaining an income for decades of retirement any easier and so taking advice on how to structure the income and ensure that it lasts as long as you do will remain the focus for most retirees today.”

“While the removal of the death tax from new funds in drawdown will make that option more attractive, there will still be a place for annuities to be bought by some retirees who do not wish to have the risk and uncertainty of income drawdown. For many a combination of a guaranteed income to fund basic outgoings, with discretionary spending funded by a drawdown fund will be a good option and will optimise security of income with the flexibility to spend more when it is affordable to do so, or leave funds to pass on to the next generation.

“With the General Election only six weeks after the start of these new rules, financial planners and their clients now need to know whether the opposition parties support these proposals and will pledge not to reverse them. Without such a commitment, planning retirement income in the meantime will be subject to unacceptable political risks. Politicians owe it to older voters to make a clear statement on this”, says Ingram.

This was posted in Bdaily's Members' News section by LEBC Group Ltd .