07 April 2015
Major changes to pension rules come into effect today which will allow savers to have more control over their money when
Major changes to pension rules come into effect today which will allow savers to have more control over their money when they retire.
People aged over 55 are now able to cash in their pensions and spend them as they wish.
The changes were announced by Chancellor George Osborne in his Autumn Statement and were expanded in last month's Budget.
Retirees are no longer required to use their pension pot to buy an annuity when they retire.
They can now take their pot in one go, or use it like a bank account to withdraw money in slices.
The changes will apply to the 320,000 people who retire each year with a defined contribution (DC) pension.
Around 540,000 people will be able to take control of their savings from today, according to estimates from the Government.
And from next year, as many as six million pensioners who already have an annuity will be allowed to sell them for cash.
Critics of the new system say savers will be tempted to go on a spending spree, leaving the state to pick up the tab later on.
But Pensions Minister Steve Webb told Sky News: "We're not going to have two million people making decisions this week or this month.
"We certainly think there will be many thousands of people who have planned very carefully and put the capacity in place.
"But I think lots of people, although they in theory could use these new freedoms, in fact if you're in your late 50s and still working, you may go on saving into a pension for many years to come."
Government advisor and pension expert Ros Altmann said: "This is a radical departure from the past. I would trust people with their own money.
"Now it's up to the industry to offer better products and more choice."
The freedoms come at a price: those who choose to tap their defined contribution pension pots for cash should be aware of income tax thresholds.
Some 25% of a person's savings can be taken tax free. Any extra that is withdrawn is liable for income tax at 40% if the total exceeds £42,386 when added to annual income.
The revenues from this could raise an extra £1bn for the Treasury, according to the Institute for Fiscal Studies.
The Government's free, impartial, Pension Wise service has been established to offer guidance to everyone eligible for the freedoms.
Pensions minister Steve Webb said: "It is right that people should have the power to make their own decisions about how they spend their own money after decades of careful saving - ending the effective obligation to buy an annuity will give people back control of their financial affairs."
It came as SNP leader Nicola Sturgeon launched her party's plan for pensioners, listing "the kind of policies" they will pursue if they secure a significant number of seats in the General Election.
"We will maintain the 'triple lock' on pensions, we'll set the single-tier pension at £160 a week, we'll resist any further increases in the state retirement age in Scotland until we have tackled and closed the life-expectancy gap (and) we will absolutely oppose any attempt to take away the winter fuel allowance."Read More