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Osborne announces pension tax shake-up

The Chancellor has announced major reforms to the UK's pension tax rules

Monday 17 March 2014

Retirees are to be handed greater control over their savings, after the Chancellor unveiled a shake-up of the pension tax system.

-- See all our latest Budget 2014 commentary at www.ukbudget.com --

Rather than being forced to purchase annuities upon their retirement, measures contained in today’s (19 March) Budget will enable individuals to draw down as much of their defined contribution funds as they wish.

Addressing MPs in the House of Commons, George Osborne said that normal tax rates will also apply when people draw money down from their pension funds, rather than the previous rate of 55%.

Reforms ‘long overdue’

Tony Clare, pensions advisory partner at business advisory firm Deloitte, said the reforms outlined by the Chancellor are “long overdue”.

He said: “It will make pensions more flexible and attractive. Income drawdown accounts for about 15% of the UK’s £11 billion annuity market and these changes will make it much more widespread.”

According to Mr Clare, many of the 400,000 Britons who purchase an annuity each year might be able to boost their retirement income by up to 15% if they opt for income drawdown.

Retirement advice pledge

Among the other measures included in his Budget, Mr Osborne said free financial advice will be offered to defined contribution pension savers who are approaching retirement.

Mr Clare welcomed this concept, commenting: “Giving people free advice at the point they make retirement decisions is an excellent idea.”

Pensioner Bond launched

In a further effort to support retirement savers, the Chancellor said a new state-backed Pensioner Bond is to be launched.

It is hoped the bonds will help people who have suffered weak returns in light of the record low base rate of 0.5%.

The Government will issue up to £10 billion of the new bonds and individuals will be allowed to save as much as £10,000 with their assistance.

Discussing these proposals, Mr Osborne said he is planning the “most far-reaching reform to the taxation of pensions since the regime was introduced in 1921”.

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

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Copyright Press Association 2014

“It will make pensions more flexible and attractive. Income drawdown accounts for about 15% of the UK’s £11 billion annuity market and these changes will make it much more widespread.” Tony Clare, Pensions Advisory Partner at Deloitte

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