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Final salary pensions crackdown

Guardian Wealth Management is calling on investors to reassess their pension options, as it looks likely that HM Revenue & Customs will clamp down on final salary pension schemes.

Currently, members of final salary pension schemes benefit from yearly increases linked to inflation, ensuring that their income keeps pace with real spending power.

However, plans outlined by HMRC could see this snatched away, following proposals to allow employers to offer a “slimmed down” scheme whereby they could opt not to apply this indexation on pension rights accrued in the future.

Furthermore, changes to schemes could see trustees no longer having to pay income to a member’s spouse in the event of their death.

We believe that in light of these proposals, those individuals saving towards a pension should explore the benefits of SIPPs and QROPS as viable alternatives.

John Storrie, Regional Manager Client Services, says: “Final salary schemes have long been considered the golden egg of pensions due to the attractive guarantees they promise members. However, long life expectancy coupled with tough economic conditions, means trustees are increasingly forced to fork out larger sums of money than they are bringing in.”

Recent research revealed that final salary schemes are turning into the pensions black hole of the FTSE 350 index. At the close of 2009, they were underfunded by £170 billion, compared to just £60 billion a year earlier, according to Mercer.

The number of people with final salary schemes is dwindling as they become virtually extinct to new joiners in the private sector. Around 30 employers, including the likes of Vodafone, Dairycrest and IBM have closed or are consulting on the closure of their schemes to existing employees as they push for cheaper, market-based alternatives.

John says: “It is quite clear from the recent meddling with pensions that HMRC is not afraid to make unwelcome changes in a bid to protect their coffers and it will be those final salary scheme savers who bear the brunt of their latest proposed crackdown as employers take advantage of the potential new proposals. We would urge investors to consider other options available in order to protect their estate and loved ones in the event of their death.”

Both SIPPs and QROPS can continue to pay out income to the spouse of a deceased member and QROPS members benefit from the added bonus of not being subject to a UK tax charge on death. QROPS have grown in popularity among the global expat community in recent years and Guardian Wealth Management fully expects this to continue as pension investors grow increasingly tired of the interference and stringent requirements placed upon other pensions.

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