Queen’s Speech confirms massive pensions overhaul

The Queen’s speech confirmed that pension reform will ‘give individuals the freedom and choice to access their pension as they see fit, with the biggest change to the way people are able to access their pension in almost a century’ (Chowdhury 2014).

The speech discussed the overhaul of the pension system as well as legislation to introduce new CDC rules. Individuals will be able to withdraw money from their defined contributions pot after the age of 55 as and when they wish and only pay their marginal rate of tax. Withdrawals can be structured to reduce tax charges. Annuity’s need no longer be bought but are still one of many options available.

In the short term it is likely to deliver the government a sizable lump sum in tax revenue as pensioners pull out their money fast. This will look nice on paper ahead of election year as I have mentioned in a previous post on the budget. But, in the long term these changes are likely to cost the government. So, this is a victory because it does look good doesn’t it? A nice cash influx for the government in the short-term and a clear pitch for the over 60s vote come 2015 – it’s a win win! Why wasn’t this great reform brought about earlier? A cynical person would say because the general election is next year – duh!

What it does do is empower individuals to make their own choices – there is no question that pensioners will have control of their money. So, whatever age we are right now we have a greater freedom of choice and a greater level of independence ahead of us now.

The new ‘CDC scheme would see worker’s savings pooled with those of thousands of others, rather than being run individually, and smooth the risk to employers of running multiple pensions’ (Gillbe 2014).

This will give people far greater certainty with their investments and general consensus is that long with increased security they could also be better value. It’s hard to say if this will equate to greater return but either way they will supply a safer and therefore more beneficial outcome.

In one sentence what this means is: pensions just became a viable investment. We have seen plenty of people lose out to private companies squandering their money. We have seen the retirement age move further and further away from us and we have seen governments tax us, control our money and plunge us into a debt centred society. We now have a glimmer of home – so invest your money wisely and make the most of your new powers. At least when we are able to retire we might have something decent put away for the occasion!

Ruth Gillbe (2014), ‘Queen’s Speech confirms commitment to annuity overhaul and CDC. Accountancy Age. Available online: http://www.accountancyage.com/financial-director/news/2348482/queen-s-speech-confirms-commitment-to-annuity-overhaul-and-cdc

Chas Roy-Chowdhury (2014), ‘Queen’s Speech Statement: ‘Pensions Tax Changes Put People in Control of Their Money’. ACCA: The Global Body for Professional Accountants. Available online: http://www.accaglobal.com/gb/en/discover/news/2014/06/queens-statement2014.html

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