Association of British Insurers Responds to Budget Proposals

Stephen Haddrill, Director General of the Association of British Insurers (ABI) issued a comment on the UK’s recently announced budget. Chancellor of the Exchequer Alistair Darling has proposed raising taxes on a number of items, including high-polluting cars, alcohol and cigarettes. The budget also provides for more stringent tests for government benefits..

Haddrill stated: “From today consumers will be tightening their belts. Many people face higher taxes and tough news about the economy. Consumers need to protect themselves, especially those who hold part of the UK’s £1.4 trillion [$2.85 trillion] of consumer debt. They should review their finances and consider whether to insure themselves against losing their job or becoming ill.”

He also commented on the increasing need to protect homer and business against flood threats. “As well as a grim Budget today we have grim weather too,” Haddrill stated. “The incidence of extreme weather is increasing. Flooded homes are becoming commonplace. The Chancellor must spend some of his green taxes on increasing protection for homes and businesses against the threat.”

Discussing the Government’s proposals on the UK’s capital gains tax (CGT), Haddrill indicated that although there had been “no change to taxation of life insurance bonds,” the Government’s “lack of consultation over the effect of the CGT changes has caused confusion and uncertainty for savers and the insurance industry alike.”

Peter Vipond, the ABI’s Director of Taxation added: “The Government’s CGT proposals were made without consideration of the impact on consumers who hold investment bonds and the wider consequence for savers. In future, the Treasury should deliver better analysis and consultation.”

The ABI’s bulletin pointed out that the “benefits of investment bonds remain,” noting the following:
— The ability to draw a fixed monthly income independent of the performance of the underlying investments
— That a withdrawal does not reduce the customer’s age allowance or means tested benefits (important for pensioners).
— The insurance company handles all the tax – basic rate taxpayers don’t have to fill in a tax form, and have the calculations done for them
— It’s easy to switch from one investment fund to another inside a bond, without triggering new charges or a taxable event.

Sarah Knight, the ABI’S Assistant Director of Taxation commented: “Allowing very small occupational scheme pension pots (less than £2000) [$4072] to be paid out as a lump sum is a useful simplification. However it is disappointing that this couldn’t be applied across all small pension pots to reduce confusion for all low income pension savers.”

She added that the “changes announced today, to the proposals outlined in the PBR, about the tax treatment of life company’s reinsurance are now better targeted and clear. However, we still believe retrospection on existing contracts should be removed.”

Source: Association of British Insurers – www.abi.org.uk

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