Chancellor George Osborne is expected to use next week’s Autumn Statement to cut the tax paid by widows and widowers on annuity payments after their partner’s death.
At the Tory party conference, the Government announced it was abolishing the ‘death tax’ normally paid on pensions in payment if the member died before reaching the age of 75. If the member dies after 75, the remaining pension is taxed at the beneficiary’s marginal rate of income tax or 45 per cent if taken as a lump sum. However, this only applied to drawdown pensions and value protected annuities, not conventional contracts.
Currently a widower is taxed at their marginal rate if they continue to take the annuity as stream of payments.
But the Financial Times reports the Chancellor will use his last Autumn Statement before the general election to include annuities in the proposals, meaning no tax would be due on payments if the member died before 75.
September’s original announcement on the tax changes caused a wobble in insurers’ share prices as the move was seen to be favouring drawdown over annuities.
Annuities sales have continued to fall since last March’s Budget.
Legal & General pensions strategy director Adrian Boulding told the newspaper: “If this inconsistency is corrected then it would be very good news for the industry and for the widows and widowers receiving income from joint-life annuities.”
Yesterday, the FCA revealed it is investigating the non-advised drawdown market in response to growing concerns savers make poor choices when accessing their pension flexibly after April next year.