The Chancellor’s plans to scrap the 55 per cent death tax applied to pension pots has been slammed by the boss of one of the world’s largest independent financial advisory organisations as “a style-over-substance policy” that will see many of the “squeezed middle” dragged into the higher rate of tax bracket.
The founder and chief executive of deVere Group’s comments come after George Osborne announced a pledge this week to abolish the 55 per cent tax rate from April 2015.
Mr Green observes: “Whilst I champion the idea of people not having to pay tax on their hard-earned pensions, and welcome the fact that it might encourage people to save into a pension and therefore have a secure income throughout retirement, I believe this amounts to a style-over-substance policy that will, in reality, benefit a minimal amount of people.
“This is because it will only apply to those who die before the age of 75 and, at 81, average life expectancy is already significantly higher than this and is set to continue to increase further.
“This death tax announcement is a crowd-pleasing vow to woo the influential older voter ahead of the general election. It is the latest in a series of pension reforms designed to engage this vital demographic.”
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In addition, the deVere Group CEO warns about the potential tax implications of the latest proposal.
He says: “What has not been widely reported, perhaps intentionally, is that the scrapped death tax is to be replaced by income tax.
“As such there are real concerns that many people will be subsequently dragged into the higher rate of income tax, which is currently 45 per cent.
“I suspect that this could severely hit the middle classes once again. The so-called ‘squeezed middle’ squeezed even more.
“I would urge anyone who might be affected by this new measure to seek professional financial advice to explore the various options to mitigate the possible adverse tax implications.”