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Huge cost to savers revealed in ACT cut

The Government&#39s decision to axe advance corporation tax credits will cost savers more than the cost of commission or product charges, according to Scottish Life head of pension strategy Steve Bee.

He says while product providers and IFAs are being forced to show consumers the costs of running and distributing their pension, the real cost of removing tax benefits is being hidden from investors.

For someone contributing £100 a month for 20 years into a pension scheme, by maturity, provider charges excluding commission would be around £2,692, based on a growth rate of 7 per cent, according to Bee&#39s estimates. Commission charges for IFAs would also cost around £2,692 by the end of the policy.

The ACT tax credit would have been worth £2,935 to the retirement fund for the same person, using the same growth rate. This represents 8 per cent more than the cost of either commission or provider charges, making it the biggest cost to a pension scheme.

The ACT credit was abolished in Chancellor Gordon Brown&#39s first Budget in 1997. Its removal is estimated to have given the Treasury £5bn from pension funds and has been blamed in part for forcing final-salary schemes to close.

Bee says the cost of removing ACT credits is the biggest charge affecting people&#39s pension fund and needs be made clearer to the public. He says: “Most people accept there are charges for running a pension scheme and that paying for advice is worthwhile. But there is another charge which has a greater effect on final fund values which we are not required to tell people about. This is a highly significant cost which seems to go to the Treasury through sleight of hand.”

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