Ageism Rules OK ? Follow up

5 March 2007

by David Baker Wealthtime


I see the opposition to the Treasury's plans to solve the problem of what to do with an over 75s fund on death by nicking most of it themselves, is gathering pace.  Some big names in the SIPP industry are putting their weight behind the lobbying and a petition has been launched.  Perhaps it will rival the size of the petition against road charging but I doubt it.  There aren't enough people approaching 75 with a decent pension pot to make that much difference.  Yet this really affects a lot more people  anyone over 50 should be worried and there are lots of those.  This is the generation with the spending power.  It is also the generation,  from a recent survey, more worried about retirement planning than about anything else the  thank goodness we got on the bandwagon before house prices went through the roof;  the thank goodness the children are off our hands generation.  A bit smug and complacent may be but why not  they've earned it.   Some money in the bank lousy rates of interest but at least its more than inflation - a few stocks and shares and their pension fund.  OK a lot of people are still in final salary schemes and this must seem a fuss about nothing to them but that won't always be the case as more schemes close and more members decide to take their money and run (not Civil Servants or Government Minister, of course!)

These are the people who don't rely on state handouts and never will.  They pay their taxes and don?t make a fuss.  They are entitled to expect that they will be able to leave their pension fund to their children subject to a tax hit but a reasonable one.  Tax to be acceptable must be fair and proportionate.  Under the present proposals which won't become law until July, with the passing of the Finance Act, retrospective to April 6th, (if you die before then aged over 75 you'll be subject to the present short lived regime, not many will fall into this category!) you will be worse off than if you  just take the money out of your fund before you die as an unauthorised payment when you cop for a 55% tax charge as against the effective 82% tax if you die over 75.  It is totally iniquitous and daylight robbery.  It is actually an incentive to spend your fund by taking the maximum possible benefits so there will be less to leave hardly the best way to encourage saving or avoiding reliance on the State.  As someone with a SIPP and approaching middle age (60 being the new middle age)  I will be faced with that dilemma and I'm not sure what I will do as I don't, of course, know whether I will live beyond 75 which only makes the decisions that much harder.  Retirement planning shouldn't depend on having to second guess this  there are enough investment uncertainties to think about already!

All this worry will help ensure I don't live to a ripe old age!  If I do and end up in a nursing home does anyone know if the value of the pension fund is taken into account in deciding how much you have to pay for the privilege?  Is this a new sales angle I wonder?

 


This article represents the personal views of David Baker and is not a substitute for professional financial advice.


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