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Ten reasons to welcome George Osborne’s pensions revolution

19 March 2014

4:25 PM

19 March 2014

4:25 PM

After so many years of waiting for good news on pensions and savings, suddenly so much comes at once.  Like the proverbial Number 13 buses, a whole raft of policies has all come at once – and they are good news. It’s also a brilliant Budget for Tory election prospects of course.  The devil of some of this will be in the detail but overall this is just good news all round.  And will even bring in more tax for the Chancellor short-term as pension lump sums will deliver higher tax revenue than taking small amounts of income or delaying annuity purchase. Here’s my take.

1. ISAs now more flexible with £15k limit
The Chancellor has delivered a Budget for savers, albeit against the backdrop of pitiful interest rates, but allowing a £15,000 ISA limit and all of it in cash, will suddenly increase the interest income that people can earn, since they will no longer be taxed on it. The Chancellor will finally allow people to choose whether they put all their ISA allowance into cash, or stocks and shares, rather than only being allowed to have half in cash.  You can switch, as you wish, between different investments and will be able to do what’s best for you.  If you are saving for a house deposit, you can put your money into cash and not worry about investment risk.  If you’re retired and trying to live on your savings, again you can shelter more money from tax without being forced to take more investment risk.

2. First £5,000 of your savings interest to be tax-free
Currently, there is a 10% starting rate of tax for very low earners, up to £2880 of income, but that starting rate is now rising to £5,000 and the 10% rate is being cut to zero.  This will help poorer savers and will also be simpler.

3. Pensions flexibility massively enhanced
There are so many good news aspects for pension savings in this Budget that it is hard to know what to pick out.  The overall message is, pension savings are going to be more flexible at the point of retirement. You will be able to save more into pensions knowing that there will be less restriction on what you can do with the money.


4. Nobody needs to buy an annuity. And before you do, you’ll have to get face-to-face advice
All DC pensions look set to be freed from the annuity straitjacket that has disadvantaged people in the past.  As the Bank of England’s policies have brought long-term rates so low, annuity rates have plunged and people get very poor value from the annuity market.  The FCA recently exposed just how badly some annuity companies are treating customers and I have been campaigning for the changes that have been announced today for years.  The Chancellor now says before buying an annuity people will be entitled to face-to-face impartial advice.  That will be consulted on, but is so important.  I don’t know if they are frightened of a new misselling scandal, like I’ve been warning, but whatever the reason, it’s essential that people understand what they are doing before buying an irreversible annuity.

5. You can take more pension funds as cash
Currently anyone with pension savings below £18,000 can take all the money as cash, with a quarter tax free.  In addition, your two pension pots worth under £2000 can be taken as cash but the remainder has to be either annuitised or put into drawdown.  The Chancellor is massively extending these limits, so that anyone with pension savings under £30,000 can take it all as cash and up to three funds below £10,000 can also be cashed in, with tax paid at the marginal rate.

6. Drawdown enhanced: Minimum income requirement cut to £12,000
Those who are in income drawdown currently can only take their money without restrictions if they have secured pension income for life worth £20,000 including state pensions.  That limit is now being cut to £12,000 a year income.  Many will be able to achieve that from state pensions plus a bit extra, so they will end up being able to invest in flexible income drawdown and have access to their money.

7. Capped drawdown limit increased to 150% of GAD rate
People are currently restricted to taking only a certain amount each year from their pension fund.  This limit is set by the government actuary at 120% of the rate on a single life annuity.  The chancellor is increasing this to 150% (it has only just been raised from 100%) which will be welcome news.  This will also help people in poor health, who currently could get better than standard annuity rates but were penalised by the income drawdown system.

8. The 55% penal tax rate on drawdown is being reduced to marginal rate
Many people have been stung by the tax rate on drawdown being 55% for monies left over, but the Chancellor is cutting that to just the marginal tax rate.  This is far fairer.

9. This is a Tory vote-winning budget.  Savers and those with good sized pension funds will feel far better off and have been pleading for some help – at last it has arrived.  Even smaller savers are being helped, with higher amounts of pension money being available as cash lump sums for smaller pension funds and with a zero per cent starting rate of tax on savings income, added to which rules for ISAs are becoming far more generous.

10. At a budget for savers – at last! 
Well well, who’d have thought an election was coming up next year?  Many of the measures will only start in the run-up to the next election.  A master political strategist has really thrown down the gauntlet now!

Ros Altmann is a UK pensions expert and campaigner

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Show comments
  • Jackthesmilingblack

    It`s your money, what`s left of it after those private pension provider tossers have taken their cut through fees, charges and commissions. You should be able to drawdown 100% and shop for annuity. But there are far better options out there, particularly from this end of the ranch.
    Note well that if you no longer have a UK address, your annuity options are severely limited. That said, you might want to give Canada Life a bell, on the “best of a bad bunch” basis.
    Jack, Japan Alps

  • monty61

    I wonder if this isn’t another Pasty Tax moment. I just read this on another site, can some one here tell me the flaw in the logic:
    (assuming you are 55+ and in the 40% bracket)

    1. Dump all earnings in 40% band into pension via salary sacrifice scheme

    2. No employee NI to pay (save 2%)

    3. Employer donates their NI (save 12%). This costs them nothing.

    4. Take money out again.

    5. 25% is tax-free, the rest is at your marginal rate.

    5. Pay your 40% on the taxable bit but there is no NI to pay.

    You have just reduced your marginal rate from 54% to 30%. I wonder when the government will notice this is just too good?


    Well? All too often Gideon’s super wheezes turn out to be less than thought through.

  • Chris Bond

    “Labour doesn’t want to talk about today’s budget”

    O you wait. Business will have it’s say. Especially the pension industry. The budget was a disaster.

    1)ISA limits down £2,280 (prior to this it was £5,760 for a cash ISA and £11,520 for an investment isa – totaling £17,280, now it’s £15,000 total.)
    2)Pension raid in the form of allowing the whole 75% over the 25% tax free to be taken at 20% tax.
    3)Pension bond of only £10,000 which will do nothing for those who have annuities of £100,000+.

    The whole thing was a scam.

    • Whyshouldihavetoregister

      Your point 1 is incorrect: it was £11,520 total, with a maximum of £5,760 to be held as cash. (So you could put anything up to £11,250 in stocks and shares, but if you had the maximum cash amount, only another £5,760 in stocks and shares.) Since you are an ignoramus, I have not bothered to read on.

      • Chris Bond

        Corrected. But the other points hold.

  • Jenson Phaedor

    I can’t wait to start saving.

  • Framer

    Just how much tax would you save on a standard cash ISA? I believe it is derisory.

    • Mike Barnes

      Yeah, you’d be a mug to put 15k in an ISA right now when inflation is higher than the best rate on the market.

      Could be useful in a few decades time when rates get back to normal though…