Other Citywire websites
Stay connected:

View the article online at http://citywire.co.uk/new-model-adviser/article/a741490

Budget 2014: 'No one will have to buy an annuity' says Osborne

by Jun Merrett on Mar 19, 2014 at 14:00

Budget 2014: 'No one will have to buy an annuity' says Osborne

The government has unveiled a landmark overhaul of pensions drawdown and has abolished the 55% tax on pension withdrawals at retirement, meaning no one will have to buy an annuity.

From April 2015 people will be able to access pension savings as they wish at the point of retirement, subject to their marginal rate of income tax, rather than the current 55% charge for full withdrawal.

However the retirement age, for accessing private pension savings without a tax charge, will rise from 55 to 57, to reflect increases to the state pension age, although not until 2028.

The chancellor said the majority of people would still purchase an annuity, but the changes would allow individuals to withdraw their savings when they wanted, subject to the marginal rate of income tax.

He said: 'Let me be clear, no one will have to buy an annuity.’

The Treasury said: 'We have introduced the most fundamental reform to the way people access their pensions in almost a century by abolishing the effective requirement to buy an annuity, giving people much greater freedom over how they access their pension savings.’

Chancellor George Osborne announced that from 27 March 2014 the guaranteed pension income required for flexible drawdown will be cut from £20,000 to £12,000.

The capped drawdown limit will also increase from 120% to 150% of the Government Actuary's Department rate to allow more flexibility to those who would otherwise buy an annuity.

The government said that due to these changes it expected some people will draw down their pensions sooner to suit their situation and this will increase income tax revenue in the short to medium term.

The Treasury said: 'In this parliament, the government has already removed the requirement to annuitise by age 75, and introduced flexible drawdown of pension savings for those who meet a minimum income requirement in retirement. This Budget announces further radical changes that will offer people more options in how and when they access their defined contribution pension.'

24 comments so far. Why not have your say?

Steve

Mar 19, 2014 at 14:25

We will all have to be responsible adults in our old age.

So lets blow the pension pot and then who pays for care home fees 5/10 years later?

report this

Chris Geeson

Mar 19, 2014 at 14:30

So what would you do? have as much money and fun as possible between age 65 to 75 because you are still young enough to enjoy it and who cares after that, you might be struggling to get the crayons out of the box by then. Give a section of society a limit and they will always want to take it and stuff the consequences as Steve says.

Wow this man really does not know the standard man in the streets view on life at all does he.

report this

Long John Silver

Mar 19, 2014 at 14:48

Does Pre-Retirement mean that the current minimum age of 55 is to go?

report this

James

Mar 19, 2014 at 14:57

George has probably confused himself between £12k per week, £12k per month and £12k per year.

Guess which one he gets?

report this

John Borgars

Mar 19, 2014 at 14:59

@ Steve and Chris Geeson

Unless it's a trivial pot, you can only blow the pension pot if you have separately an assured income of £12k. Otherwise you are in capped drawdown which limits you to less than 10% of the fund, so (if it's invested in gilts yielding 3% pa) you've still got more than half the fund left after 10 years and more than one-quarter after 20 years.

Certainly more guys are going to spend more money while they are able to enjoy it but that won't leave them with only the basic state pension to live on.

report this

John Borgars

Mar 19, 2014 at 15:05

@ James

George Osborne stated when interviewed by hostile BBC reporters that he doesn't pay top rate tax (unlike so many of the BBC staff).

report this

James

Mar 19, 2014 at 15:15

@ John B - He may not pay top rate tax, but I'll bet his total 'income' is well north of £150k pa. He's a multi millionaire who went to Eton isn't he? Probably a nice big family trust from which he benefits so his parliamentary income is his pocket money!.

report this

James Clancy

Mar 19, 2014 at 15:15

As they always say" the devil is in the detail.

At present it is only headlines

report this

Phil Castle

Mar 19, 2014 at 15:16

I am hoping that John Borgars is right re his interpretation of the mixed messages from Georgy boy as well as confused reporting by all the press.

Increased flexibility at retirement is good, but pre 55 could be a mess.

report this

Steve

Mar 19, 2014 at 15:16

@ John Borgars - well that is next year but from 2015 - happy days, fill your boots pensioners, draw what you like.

report this

Gordon Sinclair

Mar 19, 2014 at 15:19

"No one will have to buy an annuity' says Osborne"

The need to buy an annuity ceased in 2006 (from memory)....maybe someone should tell him!!

report this

Smithling

Mar 19, 2014 at 15:55

This is going to be a trainwreck.

If there was ever a time to set up your own hang-yourself-no-liability website offering pension "opinion" not "advice"... then it's now.

The brokers are going to make a killing from this while the nation pillages their own futures.

report this

John Borgars

Mar 19, 2014 at 16:10

@ James

This is *not* a party political broadcast for the Labour Party, so please take ten seconds to check your allegations before irritating me. It is a matter of public record that George (ne Gideon) Osborne attended St Paul's School which is less expensive but, according to the annual FT survey, more intellectual than Eton. He won a "demyship" (scholarship in modern parlance) to Magdalen, one of the better Oxford colleges. His father is a multi-millionaire but has four sons so GO will probably only inherit part of the family fortune (sure, even before that, he's better-off than I but quite possibly less so than Ed Miliband).

He's not my favourite politician (unless the choice is down two alternative chancellors) but I don't have to be a fan to think that he deserves the truth.

report this

Jonathan Kirby

Mar 19, 2014 at 16:17

Great for some dangerous for others.

I can think of some clients who definitely shouldn't be trusted with access to their entire pension pots in one go.

I can also see scenarios where over drawing one year leads to additional risk being taken the next and the resultant downward spiral if things don't work out.

Advice will be more valuable than ever, but will it be heeded by those who need it the most?

report this

You must be joking

Mar 19, 2014 at 16:25

@ Gordon Sinclair

You are correct... the compulsory purchase of an annuity hasn't been around for years!

@ CityWire

I appreciate you have been trying to get stories to the website as quickly as possible, but today your reporting has, quite frankly, been diabolical, full of errors (both technical and grammatical) and leading, more than ever, to sensationalist headlines - have you taken a number of Daily Mail journalists on for the day?

@ Everyone else

As someone above said, the devil is in the detail.

The detail is at:

https://www.gov.uk/government/publications/budget-2014-documents

And also remember, whilst no-one HAS to buy an annuity (either now or post budget) the FCA take a hugely different approach to the difference between whether somebody can do something and whether they should.

In essence, nothing has changed, if a non-annuity based retirement isn't appropriate today, it still isn't after George's announcement...

Right, I'm off to buy some shares in Partnership and Just Retirement ;-)

report this

Simon Kershaw

Mar 19, 2014 at 19:29

I cast my eyes wistfully back to 1995 and the Equitable Life Managed Pension - in effect Drawdown before drawdown existed. 20,000 Equitable pension holders suffered then from lack of forethought. I do hope the same thing doesn't happen here amidst the thunder of hooves heading for the exit.

report this

Hugh Jars

Mar 19, 2014 at 20:37

He has POTENTIALLY triggered off a new set of '' Unintended -Consequences'' in this undermining of the annuity market.

IT is quite obvious that Annuity will remain the appropriate and best choice for some people, but has Osborne taken advice on the potential impact of this on Life Insurance rates?

The less the traditional providers have in the 'Annuity Tank' means there is less to subsidise the conversely underwritten side of the business .....Life Assurance rates.

Still, as General Haigh said in 2015 before the big push,

MWWAGGAHH,

small details...... Get over the top boy, before I shoot you

report this

Johnsy

Mar 20, 2014 at 11:29

Being lazy but if someone is in drawdown and dies then what happens to remaining pot.

I know the spouse will have options so lets say she continues drawdown and dies a year later and pension pot is £100k.

Currently, they would lose 55% on transfer out to beneficiaries but looks like that has gone but I assume still taxable.

Would it just be added to income in year of death and taxed at marginal rates (bit like an International Annuity?)

report this

Philip Wilson

Mar 20, 2014 at 13:29

Please tell me if i am missing something.

If it can all be got at,minus marginal rate tax, what is the point of Triviality at £30,000.

If it can all be got at what is the point of Gad up to a 150%,is this just for existing drawdown people.

If so does that mean those in drawdown have to stay in drawdown,or is it still classed as a pension scheme and can they suddenly take all as a lump next year.

report this

Phil Castle

Mar 20, 2014 at 13:40

@PW - Your are missing something. You need to read the full HM Treasury info which explains and has info sheets. Triviality changes and GAD to 150% are just an interim measure whilst full changes are consulted on for implementation in April 2015

https://www.gov.uk/government/consultations/freedom-and-choice-in-pensions

report this

John Borgars

Mar 20, 2014 at 14:14

@ YMBJ

Thanks

@ Steve

Yes, I have difficulty reading vast amounts of small print on the screen so it wasn't clear that I was reading the current changes as being permanent.

However the liability to pay higher rate tax if you draw too much is a small deterrent, as is the taxable nature of alternative investments if you draw more than you want to spend from your tax-free pension fund.

report this

Maverick

Mar 28, 2014 at 17:21

The simple fact that you can now draw down 150% of the GAD "basis amount" doesn't mean that you have to. Likewise, from 6 April 2015 you won't have to take all your pension out in cash.

I'm 100% sure Steve Webb (who must have masterminded these reforms, as George knows nearly nothing about pensions) believes that you and I are sensible enough to know how much we can draw down each month and that we monitor the performance of our SIPPs pretty closely. In my case my SIPP fund rose in value by 16% in the last year despite my drawing down the 120% GAD maximum, and if I can do it . . . . .

Remember if you leave your money in your pension fund it will roll up free from Income Tax, Capital Gains Tax and Inheritance Tax.

report this

Maverick

Mar 28, 2014 at 17:25

P.S. The next mis-selling scandal? IFAs telling pensioners that they had to buy an annuity, when the legal liability disappeared on 6 April 2006?

Please form an orderly queue . . . . .

report this

John Borgars

Mar 28, 2014 at 18:27

@ Maverick

Some pensioners DID have to buy an annuity and my IFA told me that because my occupational pension from previous employment was > £20k I did not have to.

So - air guitar.

Any IFAs who told clients that they *had* to buy an annuity when they did not deserve little or no sympathy.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Opportunities emerge as production moves back home


As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

A spotlight on Alastair Mundy


Alastair Mundy met Citywire's Daniel Grote at the London Stock Exchange Studios for a detailed interview about the Investec Cautious Managed fund.

More about this article:

Archive


Sorry, this link is not
quite ready yet