At present, where an individual dies and a lump sum is paid out of their annuity under value protection, it is taxed at a rate of 55%, irrespective of the annuitant’s age. From 6 April 2015, the rules change and if the individual dies before age 75, the beneficiary may receive the lump sum tax free. If the annuitant is 75 or older, the payment will be subject to a tax charge at 45% (or marginal rate for payments from 2016/17).
Andrew Tully, Pensions Technical Director at MGM Advantage, said:
"We have quickly moved to allow payments from value protection to be held until April 2015 due to the change in tax position. This seems fair given the more favourable tax basis for payments from that time.
"However we are aware some people will have an immediate need for funds. So clearly it’s important that beneficiaries have discretion over the timings of any payments, but at least they now have the option of waiting until the more favourable tax regime comes in."
MGM has made the relevant changes to processes and letters and will aim to make any payments under value protection that are held as soon after 6th April 2015 as practicably possible.
