The most fundamental change in the way people access their pension in almost a century has been announced by the Chancellor of the Exchequer George Osborne in his Budget speech.
The Chancellor set out that by removing the effective requirement to buy an annuity, people will have greater flexibility in accessing their pensions.
This means that people can choose how they access their defined contribution pension savings; for example they could take all their pension savings as a lump sum, draw them down over time, or buy an annuity.
Alongside this, the government is introducing a new requirement for pension providers to make sure that everyone retiring with a defined contribution pension pot receives free and impartial face-to-face guidance on the choices they face when deciding how to use their retirement savings.
The government has today published a consultation on how best to implement these changes, which will be introduced from April 2015.
In the meantime, as a first step towards this reform, the Chancellor has announced a number of changes to the current rules that will come into effect from 27 March 2014. This will allow people to have greater freedom and choice now over accessing their defined contribution pension savings at retirement. These are:
- reducing the amount of guaranteed income people need in retirement to access their savings flexibly, from £20,000 to 12,000
- increasing the amount of total pension savings that can be taken as a lump sum, from £18,000 to £30,000
- increasing the capped drawdown withdrawal limit from 120% to 150% of an equivalent annuity
- increasing the maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) from £2,000 to £10,000 and increasing the number of personal pots that can be taken under these rules from two to three
Supporting savers at every stage of their lives
Alongside these major reforms to how people access their pension, further measures have been announced to support savers at every stage of their lives.
This includes reducing taxes for the lowest income savers, radically increasing the flexibility of Individual Savings Accounts (ISAs) and introducing new products to help retired savers achieve a better return on their investment.
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