View more on these topics

Deutsche Bank: Market has ‘completely misunderstood’ pension death tax changes

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.


News and expert analysis straight to your inbox

Sign up


There are 7 comments at the moment, we would love to hear your opinion too.

  1. What is a money back’ guarantee and ho will it be funded .Why by life assurance
    All Osbourne has done gild the lily for the grey vote.

    My take on the whole scenario is that people wanted freedom in selection of retirement income. They have now got the freedom, with that there is responsibility.

    Once advisers have calculated clients cash flows, attitudes to risk and capacity for loss I have to agree with Deutsche Bank that many will stick to the traditional annuity with a small proportion Placed in flexible drawdown for emergency funds.

    Granted, there has been a bit of tinkering around the edges in relation to the tax It really amazes me why so many people are Getting excited but the whole scenario. Good retirement planning has been going on for years for those that care to listen

    This is the great value of financial advisers that somehow the public nor politicians seem to appreciate.

  2. brian weatherley 6th October 2014 at 1:27 pm

    Bravo Deutsche Bank.

    Sound analysis always beats hasty sound-bites from headline seeking journalists whose opinions and contributions often convey either incorrect or only partially correct information leaving the public confused and misguided.

    I hope all advisers take note of the complete changes and advise accordingly. Why do I say this? Quite simply, I encountered an individual recently who was propounding the advantages of drawdown over annuity purchase and as such harbouring an incorrect interpretation of the changes announced.
    Sadly, this is not the first time changes have been misrepresented and one led to the Lambourghini scenario.
    As my old form master would say “read and inwardly digest, Boy, before you open your mouth and reveal your ignorance”

  3. At last, some sense.

  4. So it looks like the grass is still green and the sky blue when the sun is shining 🙂

    Wise words from James and Brian

  5. A question for all who deal in pensions. I buy an annuity at age 65 with a capital guarantee. assuming an annual payment of say 5% pa and I die after 15 years. my beneficiary gets 25% of the original amount less marginal tax ? and if I live to 85 they get nothing. If this is all true then the idea of not losing all seems to be more important than the amounts involved.

  6. Bones might I suggest you pay for advice or make use of the free impartial guidance?

  7. @ Bones

    In your dreams. What about the charges? There is no such thing as a free lunch and these potential guarantees will cost a packet. (And therefore reduce income). You are of course quite right people are not seeing the wood for the trees.
    You save in a pension to provide an income in retirement. Presumably you want the largest income possible. So as you say there wouldn’t be anything left if you lived (in your example) to 85 – or beyond. Indeed you may even be wise enough to buy a joint life annuity (if you are married) and shorten the odds still further in your favour.

    For those who recon they have a short time to live then they can either withdraw the lot, pay whatever tax and spend their last days in sybaritic and riotous living. Or perhaps they may wish to leave the fund to their spouse.

    This whole thing is nothing other than a tax grab and most are either salivating at the chance to milk clients or are too myopic to understand what’s going on. In time it will come to nought anyway. We are already limited to £40k p.a and a lifetime allowance. When they stop higher rate relief serious pensions will go down the plughole. The all the £50k pension pots will be blown and the benefits bill will go stratospheric.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm