From April 2015 anyone who is aged 55 or over will be able to take their entire pension fund as cash – although only the first 25% will be tax-free – in a move will allow individuals to have access to their own cash, unlike the current system which requires an annuity to be taken out.
Clearly not unintentional this will be a massive boost to current automatic enrolment activity which is already achieving great success with opt out rates much lower than anticipated.
As part of the communications programme for newly installed workplace pension schemes I deliver each week on average two or three workforce educational events. By far and away the biggest question asked at the Q&A sessions is ‘how and when do I get maximum cash from my fund?’. At last it will now be possible to respond with an answer they want to hear.
Mr Osborne said:
“Most people still have little option but to take out an annuity, even though annuity rates have fallen by a half over the last 15 years. The tax rules around these pensions are a manifestation of a patronising view that pensioners can’t be trusted with their own pension pots. I reject that.
“People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances. And that’s precisely what we will now do. Trust the people.”
I couldn’t agree more although it will be crucial that individuals understand the full implications and make informed, thought through decisions.
The Chancellor also announced that the income requirement for flexible drawdown has been cut from £20,000 to £12,000 and the capped drawdown limit has been raised from 120% to 150%. This will make available this highly effective planning tool to a much wider audience for the first time.
Whilst its good news for investors it is a huge blow to annuity providers who at one stage had £3.2 billion knocked off their stock value in less than one hour yesterday. It may not be the death knell for annuities but it will demand a shake-up in their thinking.