Pension payouts for lower-paid workers hit by tax
By Nicholas Timmins, The Financial Times
with some of the smallest occupational pensions in
"I find it hard to believe that the
government really intends this," David Yeandle, pensions specialist
at the EEF, said. "But that is the effect of what they are proposing.
will hit lower-paid manual workers particularly hard as they are
statistically much more likely to die within five years of retirement than
people higher up the income scale."
many occupational pension schemes, members have a guarantee of five years'
worth of pension when they retire.
they die within that time, their widow or widower gets a tax-free lump sum
equal to the pension less any money that has already been paid out.
Under the "tax simplification"
proposals announced last week, that lump sum would be taxed at 35 per
cent, the EEF said.
Mr Yeandle said the move appears to be an unintended consequence of the government's drive
to stop the very well off - so-called fat cats - assembling
large tax-advantaged pensions and being able to pass the capital in them
on untouched if they die early.
For someone drawing a £50-a-week pension
who died three years after retirement, the tax would cut the lump sum from
£5,200 to £3,480 - cash that employers say could help with funeral costs
and provide a bridge to the lower widow's pension.
EFF warned pension ministers and the prime minister's advisers at
are saying they will have to write to all members in their schemes telling
them about this, which is hardly going to encourage people do more pension
saving," Mr Yeandle said.
"It is terrible PR. It hits the people with occupational pensions that you would think that a
Labour government would be most concerned about.
"And it is ironic that it is being done in the name of tax simplification - to the
vast majority of people it will look like the opposite of that."
There were, he said, two options. "The
government could stick with the status quo, which would be the simplest. I
don't know the figures but there cannot be that many really wealthy people
who die within five years of retirement that the government would need to
"Or it could set a limit on the amount that can be paid over tax free."