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Harmony to end pension discord

An Inland Revenue plan to harmonise tax-free cash allowances for pensions and lifetime annuities could boost annuity provision for women.

The move will effectively abolish an anomaly of the Finance Act 2004, which means married individuals currently have an incentive to buy single-life annuities because they get higher tax-free cash lump sums.

As the tax-free cash lump sum on a scheme is calculated as a multiple of the pension pot, the fewer add-ons that are bought, such as a widow’s pension, mean that the multiple will be higher and the tax free cash lump sum greater.

Lifetime annuities are restricted to paying out 25 per cent of the pot as a tax-free cash lump sum.

Intelligent Pensions technical manager David Trenner says this could also put an end to an unfair situation where the type of pension, and marital status, can determine the amount of tax-free cash that an individual can receive. He says:”It is an anomaly that single people buying single-life pensions get more tax-free cash because they do not have to buy a widow’s pension.”

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