Actuaries urge reform of pensions tax regime

Old people will not be able to afford to provide for themselves if drastic steps are not taken to simplify the pensions tax regime and encourage private provision by restoring tax incentives, leading actuaries have claimed.

The Association of Consulting Actuaries (ACA) said that complexities in the tax system are forcing employers to review their pension arrangements, usually downwards, by switching to defined contribution schemes where combined employer and employee contribution levels are lower than defined benefit schemes.

In a Budget submission to Chancellor Kenneth Clarke, the association said it wanted to see a reversal of the 1993 reduction in tax credits that pension schemes can reclaim. ACA chairman Hunter Devine said: ‘It isn’t practical for the Government to say it wishes to encourage greater private pension provision when at the same time it is increasing taxes on pension schemes and discouraging provision because of extra legislative burdens.’

Pension specialists Pointon York demanded an amendment to the income drawdown rules where pensions opt to defer the purchase of an annuity allowing them to move their investment should the initial choice produce poor investment returns. The firm said most pensions end up locked into the income drawdown investment house, usually an insurer, and, if the investment underperforms, the investor cannot transfer to another manager.

Pointon York’s managing director, Michael Burn, claimed: ‘The Chancellor should allow pensioners to switch their income withdrawal investment at any time, otherwise many investors could lose a packet.’