George Osborne has unveiled a selection of dramatic pension reforms in his latest Budget. Pension savers are being labelled the biggest ‘winners’ as the announcements made this week will significantly change the way people fund their retirement in the UK.
• From April 2015 anyone over the age of 55 will be able to take their entire pension pot as cash.
• Currently anyone with a defined contribution pension can choose to take a 25 per cent tax-free lump sum from their pot when they retire. If you take a larger lump sum, you have to pay 55 per cent tax on the excess, but this is being reduced to your marginal tax rate on the excess – 20 per cent for basic rate tax payers and 40 per cent for higher rate tax payers.
• From next week, the 27 March, the guaranteed income you require before you qualify for flexible drawdown, an arrangement where the additional income you take from your pension pot is unrestricted, falls from from £20,000 to £12,000. The move is retrospective so anyone in drawdown can benefit, and it will give thousands of middle earners greater flexibility and more control over their future pension incomes. Stephen Ford, head of investment management at Brewin Dolphin, said: “We welcome the fact that the government is willing to trust people with their own finances and await clarification on how the vast amount of necessary advice will be delivered.”
• Mr Osborne also increased the cash limit for taking a lump sum out of the benefit to £10,000, up from £2,000. And the total maximum pension savings you can take as a lump sum has also been increased to £30,000.
• The chancellor also announced that no one would have to buy an annuity anymore, and that those who do will have free access to impartial face-to-face advice. Adrian Walker, retirement planning manager at Skandia, says: “Today sees the final nail in the coffin of forced annuities. They will still have a role to play for those seeking to lock into a guaranteed income. But today’s announcement provides a major boost for consumers looking to save for their retirement.”
• And Mr Osborne also announced the introduction of a new “Pensioner Bond”, a new savings product for over 65s designed to help cash savings keep up with inflation. The estimated savings rates on these bonds are 2.8 per cent for a one year term and 4 per cent for a three year term, with a maximum investment of £10,000 per person.
