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Falling inflation and low annuities

Alistair Fenton complains that the abolition of corporation tax rebates in 1998 raided pension funds (Letters, February 6).

That's not so: corporation tax rates and exemptions were cut. That fall in tax rates from 31% to 28% led to an increase in share values and higher dividend receipts; which, in turn, increased the value of UK pension funds and savings. Rising share prices this year are partially restoring pension fund values. Between 1989 and 2010 income tax was lowered from 24% to 20%, increasing pensioners' net income. True, national insurance rates were increased by 1% to fund extra spending on the NHS, but pensions don't pay national insurance.

As for annuity rates, these are linked to inflation and worldwide bond markets that are not under the control of any government. As inflation fell worldwide from 1996, bond yields and annuity rates fell too. Bond rates also fell because of the transfers of cash from China into US and European bond markets. Thus the main drivers of falling annuity rates over that period were falling inflation and surplus savings in Asia.

Annuity rates have since fallen steeply because of the continued recession, and from the recent court judgment that men's pensions should be the same as women's, even though women live longer.

Andrew Dundas,

34 Ross Avenue,

Perth.

Contextual targeting label: 
Finance

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