Norwich Union accuses chancellor of "piggy bank raid" on savings

New government proposals amount to a "piggy bank raid" on investors, savers and pension holders, Norwich Union has said.

16:03 07 December 2004

New government proposals amount to a "piggy bank raid" on investors, savers and pension holders, Norwich Union has said.

Last week, chancellor Gordon Brown revealed his pre-budget report, which outlined the government's economic policy ahead of the full Budget in spring.

Norwich Union has said certain measures, described as "the closure of a tax loophole", will lower returns to policy holders and people with investment, pension and with-profit policies.

"This is simply a piggy bank raid on the funds which support our customers' savings policies - there is no other description for it," said chief executive Gary Withers.

"This proposal seems completely inappropriate at a time when we are trying to rebuild trust in the savings industry and get people to save. It is very difficult to see how this is consistent with the principle of treating customers fairly which is actively promoted by the FSA [Financial Services Authority] and government.

Norwich Union explains that the changes increase the amount of tax paid on the free reserves supporting with-profits policyholder funds.

Free reserves are surplus assets held by an organisation that can be invested where and when the company sees fit. These can then be used to compensate for specific funds that under-perform, or cannot grow as fast due to the restrictions placed on certain policies.

Norwich Union adds that new taxes could restrict the funds' ability to invest in equities, which could offer better long-term returns.

"While it may look like a tax on the company, it is essentially a policyholder tax," Mr Withers stated.