Mid-earners to subsidise rich in pension changes

23 September 2010 | By Gregor Watt

Pension consultant Ros Altmann says changes to tax rules for retirement income will see middle-earners subsidising the richest savers.

The review of annuitisation rules proposes a tax rate of 55 per cent to be applied on death to remaining funds in capped or flexible drawdown, regardless of age at the time of death. If no income is ever withdrawn from the fund, a rate of 0 per cent will be applied.

Under current rules, a rate of 35 per cent applies if the pensionholder dies before 75 and a rate of 82 per cent is applied on death after 75.
Altmann says a fund of at least £300,000 will be needed to meet the minimum income requirement to stay in flexible drawdown past the age of 75 under the new proposals.

With only 1.5 per cent of savers ever reaching the £300,000 level of pension fund, this means only the very richest pensioners will benefit from the tax reductions while an increasing number of people will pay the higher pre-age 75 rate of 55 per cent, compared with the present 35 per cent.

Altmann says: “The Government’s proposals will improve the tax regime even further for the very wealthiest but at the expense of those lower down the income or wealth scale.”

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