Investment markets have “completely misunderstood” the impact of the Government’s proposals to cut the death tax on pensions savings, Deutsche Bank has said.
In a research note, the Bank reveals it has upgraded the stock of specialist annuity provider Just Retirement to ‘buy’ after the Chancellor’s announcement at the Conservative Party Conference last week.
Specialist annuity providers’ stock prices fell following reports of the changes.
Deutsche Bank analyst Oliver Steel says the market was wrong to see the changes as favouring drawdown over annuities because value protected annuities would also benefit from the tax cut.
Money Marketing revealed these types of annuities, where savers can buy a ‘money back’ guarantee, would be included in the changes, which affect payments made after April 2016.
Pension pots designated to drawdown will no longer be subject to a charge if the member dies before reaching 75, and will be taxed at the beneficiaries’ marginal rate after that age.
Steel says: “It should be noted that exactly the same change has now been given to ‘value-protected’ annuities.
“In short, what it means is that future retirees should be able both to guarantee themselves an income for life AND, if they die early, to have any remaining funds in their annuity paid to the heirs at the latter’s marginal rate of tax.
“We think this could actually result in an increase in annuity sales once again.”
Steel notes that the vast majority of Just Retirement’s customers are “primarily interested in the income guarantee that annuities offer, not the ability to leave their remaining pension pot to their heirs”, and says competitor Partnership is in the same position.
Just Retirement’s stock price rose this morning after the note was published.