Pensions – What did Osborne say again?

Was it just me or did anyone else lose Osborne when he was carrying on about pensions and annuities. In fact, here were his exact words, they make a little more sense when you catch every word:

‘The tax rules around these pensions are a manifestation of a patronising view that pensioners can’t be trusted with their own pension pots.

I reject that.

People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances.

And that’s precisely what we will now do. Trust the people.

Some changes will take effect from next week.

We will:

-cut the income requirement for flexible drawdown from £20,000 to £12,000

-raise the capped drawdown limit from 120% to 150%

-increase the size of the lump sum small pot five-fold to £10,000

-and almost double the total pension savings you can take as a lump sum to £30,000

All of these changes will come into effect on 27 March.

These measures alone would amount to a radical change.

But they are only a step in the fundamental reform of the taxation of defined contribution pensions I want to see.

I am announcing today that we will legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots.

Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want.

No caps. No drawdown limits.

Let me be clear. No one will have to buy an annuity.’

(For full budget speech see: Gov.uk – https://www.gov.uk/government/speeches/chancellor-george-osbornes-budget-2014-speech)

 

So this is reform – real reform. Annuities existed to help retirees navigate how they would invest/live off their retirement income. They were compulsory so that pensioners were able to live off a weekly wage and enable their saved money to support them until their death. The annuity is dependent on a cash-lump sum premium in exchange for this regular income/money management service. To many they are a final insult from the state to be forced to buy an annuity with the majority of their pension. They were designed to make sure that retirees were not tempted to spend their pensions frivolously and live on a paltry weekly income for the remaining years of their life. They prevent relatives negotiating money from vulnerable pensioners. Let’s be honest though – they also give insurance companies massive profits – profits made from worker’s pensions.

So when Osborne states that pensioners will be able to release all of their money without having to buy an annuity or be restricted by drawdown limits, he has introduced a giant change – a freedom. How this freedom is used is very much up to the individual and I agree that if we work all our lives to accrue savings we should be able to spend them on our future in any way we see fit. Of course, this money will be taxed.

More good news on the tax front. The rate of tax on pension income will fall from 55% to marginal income tax rates if the whole pension pot is withdrawn. Here is where the big benefit to Osborne lies. The government anticipates that the number of people withdrawing pension income will rise steeply now that the 55% tax disincentive has gone. The government stands to make around £320m in 2015/16 from those withdrawals. A nice flow of revenue back to the state rather than to the insurance companies from cash lump sums for annuities.

It has been called the most significant change to pensions for 50 years and only time will tell whether this is a good move or a misguided one. You can be sure of one thing – there will be lots of new and promising investment opportunities set up to wow pensioners’ who have big chunks of money to invest.

We advise caution and urge people to get legit advice and spend time looking for the right investment for them. It may be property, shares, premium bonds, high interest bank accounts, annuities, land…whatever it is make sure you do not get ripped off. It is not pensioners’ who can’t be trusted with their own pension pots it is the capitalist society that surrounds them and wishes to profit from people’s savings. Get good advice and protect your hard earned cash!

For further advice on pensions see a good pensions adviser – one who is accredited and qualified.

Leave a Reply

Your email address will not be published.