Guest blog from Debbie Day @ DebbieDayIFA.co.uk
‘No one will have to buy an annuity’
Chancellor George Osborne shocks annuity sector with changes to drawdown options for retirees.
Following last month’s editorial with regards to annuities, Chancellor George Osborne has rocked the annuities market to its foundation by stripping away all caps and limits on drawdown in the 19th March Budget.
Mr Osborne said: “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.”
Among the sweeping changes to the way people fund their retirement, the government will
• cut the income requirement for flexible drawdown from £20,000 to £12,000;
• raise the capped drawdown limit from 120 per cent to 150 per cent;
• increase the size of a lump-sum small pot to £10,000; and
• increase the overall size of pension savings that can be taken as a lump sum, from £18,000 to £30,000.
In the most sweeping change, savers will no longer face the 55 per cent penalty charge if they try to take the rest of their pension after their tax-free lump sum, but will rather be taxed at marginal rates – meaning as little as 20 per cent for most pensioners.
Mr Osborne said the move showed the “trust” the government had in savers and will head off concerns over access to money that put some off saving, but some commentators were already signalling caution about the need for individuals to keep funds aside to fund their retirement.
All of the changes apply only to defined contribution pensions. Changes could be brought in which would affect defined benefit schemes and bring rules into line with the reforms announced, but that this would have to be legislated separately.
Certainly one thing is clear – more than ever before, people nearing retirement will need to take advice to understand their options and the outcome of their decisions, and the tax implications.
If you have any questions or need any help or advice please contact Debbie Day on 07704311021, or visit my website: www.debbiedayifa.co.uk
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