The devil is often in the detail but first impressions suggest two major boosts for savers in the long term:
- The increase in ISA allowances and removal of the distinction between cash and equity ISAs will enable people to save more via tax efficient schemes and give them greater investment flexibility
- The increased flexibility on withdrawals from money purchase pension schemes from April 2015 is the final nail in the coffin of forced annuities. Annuities will still have a role to play for those seeking to lock into a guaranteed income. However, today’s announcement provides a major boost for consumers looking to save for their retirement. The initiatives announced will give them more flexibility in how they generate an income from their hard-earned savings.
In the short term, from 27 March 2014, there are a number of other changes that will give people greater flexibility in how they access their pension savings:
- The amount of overall pension savings people can take as a one-off income payment from age 60 increases from £18k to £30k.
- The maximum amount people can take out each year from a capped drawdown arrangement is increasing from 120% to 150% of an equivalent annuity.
- The amount of guaranteed income needed in retirement to access flexible drawdown is decreasing from £20k per year to £12k per year.
- The size of a small pension pot that people can take as a one-off payment, regardless of their total pension wealth, is increasing from £2k to £10k.
This last change is a threat to a quarter of annuity sales because ABI data suggests that around 25% of annuity sales are currently for pension pots of less than £10,000.
Adrian Walker, pension expert at Skandia, comments:
“At face value today’s budget is a real boost for UK savers, giving them greater flexibility, choice and freedom. Greater trust has been placed in the public to choose how they wish to invest and withdraw their investments, which is likely to increase the popularity of both pensions and ISAs as long-term savings vehicles. With greater flexibility comes greater choice and responsibility, which is likely to increase the need for financial advice.”