Sipp firms back scrapping of 'pernicious' death tax

Two Sipps firms have strongly backed the move to consign the 'death tax' on pensions to the rubbish bin today, with one director saying it reaffirms the rebirth of the system. Chancellor George Osborne said the 55% charge will be scrapped from April.There will be no charge on pension funds for beneficiaries if the person is 75 or under, and for those over 75, a marginal rate of tax will be paid.There had been speculation that the tax charge would reduce from 55% to 40%, rather than being scrapped.Around 320,000 people who retire each year with defined contribution pension savings will no longer be hit by the charge and can pass on their funds to any nominated beneficiary when they die, according to the Treasury.John Fox, director of Liberty Sipp, said: "Such a such a sizeable tax giveaway - potentially impacting 320,000 people in the party's core middle class constituency - is much more than a quick headline-grabber."It is the final stage of a set of pensions reforms that together are nothing short of revolutionary. The pension industry is steadily being reborn - forced to develop new products and jettison years of hidebound complacency - and savers are changing the way they see pensions." {desktop}{/desktop}{mobile}{/mobile} "The combination of the freedom to do what they want with their pension pots - and the reassurance that anything they don't spend in retirement can be passed on to their loved ones - will encourage more to save harder."It could also deliver the coup de grace to the annuities industry."The abolition of the pernicious 55% 'recovery charge' on unspent pension pots will make many more people look at alternatives to the annuity orthodoxy - such as drawing down their pension savings gradually."He added: "At a stroke today's announcement will also torpedo many of the offshore schemes which have sprung up to get round the current tax rules."Barnett Waddingham senior consultant Malcolm McLean said the present rules "never made much sense".He said, although in an ideal world all tax charges on pension funds inherited on death would be abolished without a distinction between those aged under and over 75, it was "extremely good news".Mr McLean said: "It is right and proper that savers can feel assured that money they have voluntarily put away in a pension plan over many years and which they have not fully used should pass on to their loved ones on their death without some exorbitant tax charge being levied on it by the government."It is also probably necessary to take account of the major changes to pensions coming into force next April which will allow many savers full and unfettered access to their pension funds from age 55."If the 55% tax charge were to be retained beyond that date it might well encourage individuals to draw down their funds too quickly with a view to avoiding the possibility of having to incur this tax on their unused money. This could mean they run out of money and leave themselves short in their later years."

Sipp firms back scrapping of 'pernicious' death tax

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