Osborne £150m Tax Break For Inherited Pension Pots Is Another Example Of Tories For A Privileged Few
Chancellor's announcement flouts government's own principles that purpose of tax-relieved pension saving is to provide an income in retirement says GMB.
GMB responded to the announcement that the Government will abolish the 55% tax that is charged when deceased over 75 pass on an untouched pension pot to offspring at a annual cost the Exchequer of £150m. See notes to editors 1 for extract of speech by Chancellor of Exchequer to Tory Party Conference 29th September.
Phil Mc Evoy, GMB Pensions Officer, said “The Chancellor's reduction in the tax charged on untouched pension pots will be welcomed by those who can afford to leave their pension savings untouched until the age of 75.
These will not be the hard-pressed pensioners who will need the security of converting savings to an annual income or who face the very real prospect of using up their savings before they die. This is another blatant example of the Tories looking after the privileged few.
The move also seems to fly in the face of previously announced coalition policy from 2010 – see notes to editors 2 below - that list principles for a new tax framework for retirement, including:
1 The purpose of tax-relieved pension saving is to provide an income in retirement.
2 Any changes to the pensions tax rules should not incur Exchequer cost and should not create any opportunities for tax avoidance.
3. On death, pension savings that have been accumulated with tax relief should be taxed at an appropriate rate to recover past relief given, unless they are used to provide a pension for a dependant.
Osborne's proposal will reduce income to the Exchequer by £150m a year. It would seem to set pension saving up as an attractive means to avoid inheritance tax. We know from the rest of his speech that Government's policies to make up this lost income will not be targeted at the people who are financially able to benefit from this tax cut but the whole country and those worse off will be asked to pay for this lost income.”
Contact: Phil McEvoy on 07918 768 773 or 020 7391 6700 or GMB press office 07921 289880
Notes to editors
1 Extract from Speech by Chancellor of Exchequer to Tory Party Conference 29th September.
“That’s why in my Budget this year I applied that philosophy with far-reaching new freedoms in the way people can access their pensions.
These freedoms are based on the simple idea that people know better how to spend their own money than governments do.
This Party that gave people the right to buy their own home – is the Party that is now giving people ownership of their own pension too.
But I want to go further.
There are still rules that say you can’t pass on to the next generation any of your pension pot when you die, without paying a punitive 55% of it in tax.
I could choose to cut this tax rate.
Instead, I choose to abolish it altogether.
People who have worked and saved all their lives will be able to pass on their hard-earned pensions to their families tax free.
Effective from today.
The children and grandchildren and others who benefit will get the same tax treatment on this income as on any other, but only when they choose to draw it down.
Freedom for people’s pensions. A pension tax abolished. Passing on your pension tax free.
Not a promise for the next Conservative government – but put in place and delivered by Conservatives in Government now.”
2 For previously announced coalition policy from 2010 see Treasury Policy document at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/190142/consult_age_75_annuity_responses.pdf .
It contains the following text:
3.24 The level of the recovery charge therefore also has to ensure that, for the purposes of inheritance, the tax treatment of pension savings is not significantly more advantageous than the tax treatment of savings in other investment vehicles which would be subject to IHT. The Government’s modelling suggests that a tax charge of less than 55% would risk creating such an advantage.
3.25 In response to representations made in the course of the consultation, the Government considered some alternatives to the 55% recovery charge:
- some respondents argued for a lower recovery charge, e.g. 35%. However, this would result in a significant cost to the Exchequer, as a charge at this level would not fully recover the relief provided for many people, and would create an incentive for some individuals to save into a pension in order to avoid IHT;
- some respondents suggested that the Government could exempt a fixed initial amount from the recovery charge, e.g. £10,000 or £20,000. However, this would create significant opportunities for avoidance and administrative complexity, as individuals could split their savings between multiple drawdown arrangements so as to ensure that they fell below the taxable threshold;
- some respondents suggested that a lower recovery charge should be imposed on death benefits, and that IHT should apply to the remainder. However, this would create a significant tax advantage for individuals whose estates were below the IHT threshold, with a corresponding fiscal cost; and
- some respondents suggested that a lower recovery charge could apply to certain products (e.g. value protected annuities) which may be taken up by individuals on modest incomes. However, the Government believes that applying different tax charges to certain products would create unwarranted distortions in the market for decumulation products.
3.26 The Government has therefore concluded that none of these alternatives fits the core principles of the reform. In light of these considerations, including the expected proportion of pension funds that is comprised of tax relief and IHT avoidance issues, the Government remains of the view that 55% is the appropriate level of recovery charge for death benefits. )