On the day that George Osborne’s far reaching reform of pensions comes into effect, Theresa Villiers, Conservative candidate for Chipping Barnet, has welcomed the new freedoms introduced for people who have saved for a pension:
Theresa Villiers said: “It is right that people have more freedom to make decisions about the money for which they have worked hard all their lives.
Our reforms are giving older people more control over their pensions. These changes are based on the principle that hardworking taxpayers should be able to choose how to spend their pensions.”
“This is all part of our long-term economic plan to build a country based on savings and investment. We are supporting people who work hard, save and do the right thing, meaning that more people will have financial security in retirement.”
“These reforms will see the end of the hated rule which forced pensioners to buy annuities, even when the value of such products fell dramatically. This change is only possible because of the substantial increase in the state pension under this Conservative-led Government. It has gone up by over £900.”
“Under Labour pensioners were not trusted with their own money. People could be forced to buy an annuity, or face a punitive 55 per cent tax on withdrawals above a tax-free lump sum, even though annuity rates have fallen by half over the last 15 years. This prevented people from doing what they wanted with the money they had worked hard all their life to save.”
From today, this will change:
(i) There will be no punitive 55 per cent tax rate if you try and take more than your tax free lump sum. It will still be possible to take 25 per cent of a pension pot tax free on retirement. But what you take above the tax free lump sum will be taxed at normal marginal tax rates – not 55 per cent as at the moment. For most people this means they would be taxed at the basic rate (20 per cent).
(ii) People retiring will be guaranteed free, impartial guidance – provided by independent organisations, not pension providers - to help them decide what to do with their savings. People should take their time to make the right decision for them. 6 April is a start date, not a race to the end. People should take their time over the important decision of how to fund their retirement, and seek guidance to help them make an informed and considered decision.
(iii) Abolishing the 55 per cent tax ‘death tax’ on pension funds: Under the existing rules when an individual over the age of 75 dies, a 55 per cent tax is levied on their pension pot. The tax also applies when an individual under 75 dies if their pension is already in draw down. From April 2015, when someone dies who is 75 or over any beneficiary will only have to pay their marginal income tax rate, normally 20 per cent, when they drawdown the pension. Beneficiaries will be able to access the pension funds flexibly, at any age. There will be no restriction on how much of the fund can be withdrawn at any one time. If an individual dies before the age of 75 they will be able to pass on their pension pot completely tax-free. The beneficiary will not pay any tax when they inherit the pension, nor will they have to pay any tax on the income they draw down.
(iv) Extending pension freedoms to 5 million pensioners who have already bought an annuity: From April 2016, the Government will remove the restrictions on buying and selling existing annuities. Currently, people who want to sell their annuity have to pay tax on the proceeds at 55 per cent tax. We will remove this charge, so people are taxed only at their marginal rate. Pensioners will be free to use the proceeds as they want, either taking it as a lump sum or placing it into drawdown and using the proceeds more gradually.