Chancellor of the Exchequer, George Osborne, has announced the biggest reforms of UK pensions since the system was created. The central pillar was to allow pensioners to draw down one quarter of their pension pot at retirement at a rate of 20 percent tax: down from 55 percent.
Mr Osborne said that this reduction in tax levels will lead to an increase in overall tax rate, because savers would avoid “punitive tax rates”. He also offered increases in the limit you can save in Premium Bonds from £20,000 to £30,000. The Chancellor also doubled the number of £1m prizes offered by the scheme.
In future good news the Treasury will create a Pension Bond, open to everyone over the age of 65. The total size of issue will be £10bn, with each saver being able to save up to £10,000 through the scheme; meaning around 1m pensioners would be able to save with it.
The bond’s interest rate will be set next year but is expected to be 2.8 percent for the one year bond and 4 percent on the three year scheme. This rate is much higher than generally available in the high street. The Chancellor also pledged to merge cash and share ISAs with a new annual limit of £10,000. Junior ISAs will now have a limit of £4,000.
Also pensioners will no longer be required to buy an annuity with their defined contribution scheme. Many pensioners have struggled when they bought their annuity, the rate they are paid every year in their retirement, during periods of poor market performance.
Speaking to Breitbart London, Ryan Bourne of the Institute of Economic Affairs said: “Giving individuals the ability to access their pension pots is the right thing to do, and has been made possible by the flat rate state pension.
“But the government should not be competing for capital by borrowing at above market rates by issuing pension bonds.”