MGM Advantage will allow any claims under ‘value protection’ on annuities to be held until April 2015, to allow claimants to benefit from the more favourable tax rules being implemented under the broader pension freedom reforms.
At present, where an individual dies and a lump sum is paid out of their annuity under value protection it is taxed at 55 per cent, irrespective of the annuitant’s age.
However, the new pensions freedoms coming in from 6 April mean that if the individual dies before age 75, the beneficiary may receive the lump sum tax free and if the annuitant is over 75 the payment will be subject to a tax charge at 45 per cent.
The changes are in line with similar death tax abolition for defined contribution pensions, which was announced by George Osborne at the Conservative Party conference last month.
Andrew Tully, pensions technical director at MGM, said: “We have quickly moved to allow payments from value protection to be held until April 2015 due to the change in tax position. This seems fair given the more favourable tax basis for payments from that time.
“However we are aware some people will have an immediate need for funds. So clearly it’s important that beneficiaries have discretion over the timings of any payments, but at least they now have the option of waiting until the more favourable tax regime comes in.”
When chancellor George Osborne announced changes to the 55 per cent ‘death tax’ on pensions at the end of last month initial discussions had focused on drawdown, leading many experts to sound the death knell for individual annuities.
The following day FTAdviser was able to confirm that a concession had been made for value protected annuities, meaning this lump sum would be paid free of tax.
peter.walker@ft.com
