UK - Schemes and pensioners have attacked government plans to curb tax-free death benefits to members' spouses or relatives.
A clause in the Finance Act, which comes into effect in 2006, will stop tax-free lump sum payments to the relatives of scheme members if they are 75 years of age or older when they die.
Under current legislation a tax-free death benefit up to £2500 can be paid regardless of the member’s age.
The Occupational Pensioners’ Alliance, which represents more than a million occupational pensioners in the UK, said the rule was ”blatant age discrimination” and should be quashed via the Pensions Bill.
Executive officer Roger Turner said: “It is crazy that if you are 74 and you die your family can claim £2500 and if you die a day later, you get next to nothing.
“The argument the Treasury is using is that once you reach 75 you can draw down your capital and take your pension. But they are not drawing down their pension because the widow will still receive the widows’ pension and this is an additional benefit.”
The National Association of Pension Funds has also raised the issue with the Inland Revenue and is lobbying for the rule to be reversed before the Act takes effect in April 2006.
But a Treasury spokeswoman defended the move. She said: “Pensions are to provide for the retirement of the member and their spouse. They are not a means of passing capital through the generations. If a registered pension scheme pays a lump sum where the member dies after reaching age 75, there will be a tax charge.
“We have received representations from a small number of occupational schemes that pay a tax-free bereavement benefit. We are considering the representations.”
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