Removing the ‘death tax’ on personal pensions will lead to a “mass exodus” from final salary schemes, the managing director for financial planning firm Tideway has predicted.
James Baxter, of London-based Tideway Investment Partners, said although personal pensions would be affected by the scrapping of the 55 per cent tax levied on the remaining savings of pensioners who die before the age of 75, defined benefit schemes would still be taxed.
He said this could encourage transfers to personal pensions. Mr Baxter said: “Personal pensions now become a tax-efficient way to hand down a significant asset and financial security to future generations.
“At roughly 20 times the current deferred pension, final salary benefits are immensely valuable. A 55-year-old expecting a pension of £50,000 at the age of 60 may have a transfer value of around £1m. This could easily be the family’s biggest financial asset, if not the second biggest asset after their home”.
However, Mr Baxter did not expect such transfers to be universally appealing. He said: “The benefits of a guaranteed income for life will be more attractive to some people than taking a transfer value and investing it into a personal pension.”
Adviser view
Danny Cox, head of financial planning for Bristol-based Hargreaves Lansdown, said: “I am not sure we will see a mass exodus. There will be an increased interest in transferring across to give the option of taking a lump sum.
“For most people it is better to take income for life. It is rarely a good idea for people to leave final salary schemes unless there are exceptional circumstances.”