Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • March 2014
03

Osborne delivers blow to annuities with 'radical' pension changes

Open-access content Wednesday 19th March 2014 — updated 5.13pm, Wednesday 29th April 2020

Annuity purchases will no longer be compulsory for pensioners retiring with defined contribution pension pots, Chancellor George Osborne announced today.

2

His Budget included a host of what Osborne called 'radical' tax reforms to help pensioners and savers who have to been hit by low interest rates.

He said the government was 'backing a Britain that saves,' adding that he would scrap a number of tax restrictions on defined contribution pots, putting pensioners in charge of their own finances and bringing the tax treatment of DC pensions 'in line with the modern world'.

Under the changes, some of which will take effect from March 27, pensioners will have much more flexibility over income drawdown.

The income requirement for flexible drawdown is to be reduced from £20,000 to £12,000, while the capped drawdown limit will rise from 120% to 150%.

In addition, the size of the lump sum small pots is to be increased five-fold from £2,000 to £10,000 and the government will almost double the total pension savings that can be taken as a lump sum to £30,000.

Osborne said: 'These measures alone would amount to a radical change. But they are only a step in the fundamental reform of the taxation of defined contribution pensions I want to see.

'I am announcing today that we will legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots. Pensioners will have the freedom to drawdown as much or as little of their pension pot as they want, anytime they want.

'When it comes to tax charges, it will still be possible to take a quarter of your pension pot tax free on retirement, as today.

'But instead of the punitive 55% tax that exists now if you try to take the rest, anything else you take out of your pension will simply be taxed at normal marginal tax rates - as with any other income. So not a 55% tax but a 20% tax for most pensioners.'

With no caps and no drawdown limits, no one would have to buy an annuity, Osborne said.

But for those who still wanted to buy annuities he said he would introduce a new guarantee, so that everyone who retires on DC 'will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have'.

'Those who still want the certainty of an annuity, as many will, will be able to shop around for the best deal,' he stated.

The chancellor said he would provide £20m over the next two years to work with consumer groups and industry to develop this new right to advice.

Responding to the announcement, the Institute and Faculty of Actuaries welcomed the chancellor's changes as 'useful immediate steps' to create a new flexible retirement landscape for DC savers.

But president David Hare said it was important that the same opportunities for members of defined benefit schemes as well.

He said: 'Undertaking this will not be easy. There are a number of issues that need to be addressed by any proposal to extend the flexibility to those in DB, including making sure that DB members realise what they could be giving up (e.g. longevity protection) in exchange for increased flexibility.

'The changes will empower individuals, allowing them to take control of their own financial futures.  This is in step with the change in risk responsibility to individuals that DC brings. 

'However taking charge of your financial future can be a bewildering journey for some people and we were therefore pleased to see that the government recognises this and is committed to making sure those with a DC pension are offered the chance of impartial face-to-face guidance on their choices at the point of retirement.'

Echoing the IFoA, Andrew Vaughan, chair of the Association ofConsulting Actuaries, said: 'Clearly, we need to examine the Budget papers in some detail, but - for example - It will be important that DC members already in "lifestyle" strategies who are on a path towards annuity purchase don't get stuck in inappropriate assets. 

'And, of course, we need to examine just who will pay for the "free" guidance advice to those approaching retirement.' 

Hymans Robertson partner Chris Noon observed: 'Annuities are out and flexibility in retirement is in vogue. Spending in retirement has never matched a steady income approach - it is a game of three halves: spend early on life, spend late on ill-health and spend little in the lull in-between.

'Today's changes offer the flexibility to spend pension pots in line with this V-shaped curve of life in retirement.'

At the Association of British Insurers, which represent annuity providers, director general Otto Thoresen, said: 'These are important reforms and it is crucial for savers to get them right. It is right for people to be offered a range of options to generate retirement income, and it is crucial to ensure that customers have the information they need to make the right choice for their circumstances.

'The guaranteed lifetime income provided by an annuity can play an important part in discussions with customers considering their options.'

 

 

 

This article appeared in our March 2014 issue of The Actuary.
Click here to view this issue
Filed in:
03
Topics:
Pensions

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Senior Underwriting Risk Manager

London (Central)
£85K-£95K + Benefits
Reference
124386

Reserving Manager (Contract)

London (Central)
£1200 - £1400 per day
Reference
124385

Life Actuary - Contract - IFRS 17 Financial Impact

England, London / England, Bristol / North Yorkshire, England
£900 - £1150 per day
Reference
124384
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2022 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ