Allowing unused pension funds to pass to a beneficiary’s scheme free of tax on death is one of several additional rule changes on top of those already announced under the Budget’s radical overhaul that would further incentivise saving, according to a pension trade body.
The Association of Member-Directed Pension Scheme’s response to the government’s retirement consultation cited “many factors” that could aid innovation in the retirement income market, and highlighted in particular the lump sum death benefit tax.
It believes the government should reappraise the stance on inheritability of pension funds and consider allowing funds on death to pass tax-free to beneficiaries’ own pension arrangement.
The trade body has also proposed applying a uniform approach to lump sum death benefit tax, to reform a ‘complicated’ system that currently means uncrystallised funds on death prior to age 75 are tax free but crystallised funds, normally from age 55 onwards, and uncrystallised funds on death after age 75 are taxed at 55 per cent.
Like a number of other commentators it is also calling for the lifetime allowance, currently at £1.25m after being steadily decreased in recent years, to be removed, adding it would result in “simplification which should aid innovation”.
Amps adds the range of investment types that can be held within a pension “needs to be as wide as possible” to allow innovation of investment products for the retirement income market.
There has been much industry discussion regarding who should deliver the guidance guarantee and Amps believes the Money Advice Service is an example of an organisation who can provide this.
The Association of Professional Advisers said yesterday in its response that Mas or the Pensions Advisory Service are best placed.
The Amps paper says: “Delivery of consistent and impartial guidance would appear to be ideally suited to organisations such as the Money Advice Service who have the necessary infrastructure, resources, skill sets and experience to discuss financial matters with individuals.
“The provision of such guidance by each provider could be very onerous and costly to provide. It should be recognised that certainly within the Sipp market many providers business models are based on dealing through independent financial advisers rather than dealing direct with clients.
“Therefore the provision of guidance direct to clients would compromise this business model and would not be in the realm of its experience and expertise to date.”