Budgets pension raid means plans must be reviewed

11 July 1997

Budgets pension raid means plans must be reviewed

By Suzie Horne

PENSION plans must be reviewed after changes in chancellor Gordon Browns first Budget.

In a surprise move, described by many as "a raid", Mr Brown abolished tax credits given to pension funds on the dividends they receive from shares in UK companies. (Until now, they have been able to reclaim the 20% advance corporation tax paid on dividends.)

The move is significant, according to Denise Ranger of accountant Morison Stonehams Swindon office.

"For example, a fund of £50,000 assuming growth of 3% a year and 3% dividends over a 10-year period would lose £6500 through its inability to reclaim tax credits. Not only that, it affects growth in future years, because that money is not going back into the fund," says Mrs Ranger. "If you assumed a 10% annuity rate, that would mean a pension of £650 less a year."

While all pension funds will be hit equally, farmers are mainly buying what are known as "money purchase schemes", and they will either have to accept lower pensions or put more money in to make up for this change, advises Mrs Ranger.

Up to half of the pension arrangements made for farmers by Mark Sanders, regional director of Bruton Knowles Taunton office, are linked to loan periods. The pension holder may have the long-term aim of using his pension fund to pay off a loan rather than selling land or other assets, and banks sometimes take security over the pension.

"These are potentially at risk from this change, and the message is that they should be reviewed." &#42

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