UK - The British Treasury is blocking annuity reform because it would lead to an unsustainable tax leakage, campaigners claim.
Following a meeting with economic secretary Ruth Kelly last week, Retirement Income Reform Campaign chairman Sir Nicholas Goodison said that economic secretary Ruth Kelly told him the Treasury believes income tax rebates on contributions would increase once the disincentive of buying an annuity had been removed.
Industry experts have long argued that the Treasury is dragging its feet on changing current regulation as it would make a huge dent in its coffers.
Ruth told the Commons that the Treasury is currently paying £8.1bn in tax relief on approved pension schemes for high rate earners. But many fear this figure would double if annuity regulation was relaxed.
An Inland Revenue study earlier this year found high earners would pay up to three times more in pension contributions if they did not have to buy an annuity.
But Arthur Anderson pensions department partner Orlando Harvey-Wood cast doubt on the government-estimated cost of reforming annuities. He said: Across the population as a whole I find it hard to believe the assertion that people have got two or three times as much to put aside into their pension savings than they are currently doing.
The Annuity Bureau's head of marketing, David Marlow, claimed that if the government did introduce reform, it would ensure that it did not affect its assets. Marlow said: If [the government] was losing something from one part of the equation they would be taking it back from another part, to ensure that the tax take was equally attractive from the revenue point of view.
The Retirement Income Reform Campaign wants:
*Changes to the current regulation which compels people to take out an annuity at age 75,*The pension pot on death to go to an annuitant’s estates rather than the annuity provider.
It has proposed a double tax regime where all pension fund transfers on death would be subject to both an exit charge and to inheritance tax. Reform Campaign director Oonagh MacDonald said: Each side seems to accept the same overriding principles: that the state must be protected and people have a minimum retirement income, guaranteed for life.
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