Greg Hands welcomes George Osborne’s Pensions Revolution

Greg Hands MP has welcomed measures in the Budget that will help Chelsea and Fulham residents who work hard and save for their retirement. The Budget was voted through by the House of Commons on 25th March 2014, and contained far-reaching reforms to give people more freedom over their pension pots. The Budget also included the creation of a new pensioner bond to help deliver financial security for pensioners.

The Budget 2014 gave new pensioners more freedom, through the most extensive reform of pension taxation in a century. 13 million people have defined contribution schemes, but under the old system people with these schemes faced a punitive 55 per cent tax if they chose to draw down their pension pot on retirement. Therefore, most people had little option but to take out an annuity, even though annuity rates have fallen by a half over the last 15 years.

From April 2015, however, this will change, thanks to changes made by George Osborne and the Conservatives.

No one will have to buy an annuity if they don’t want to. Instead, retirees will be able to take a larger cash lump sum to invest, or otherwise spend, as they see best. Those who still want the certainty of an annuity can shop around for the best deal.

There will be no punitive 55 per cent tax rate, if people try and take more than their tax free lump sum. It will still be possible to take 25 per cent of a pension pot tax free on retirement. But anything taken 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 of 20 per cent.

Additionally, a new guarantee, in law, will mean everyone who retires on these schemes will be offered free, impartial, face-to-face advice. This will make sure people get support on how to get the most from their pension and the choices they take.

The Budget also creates a new pensioner bond to help currently retired savers get a better return on their savings income, and that will offer retired savers a return that is better than anything pensioners can get now. The rate will be set in the autumn, but the assumption is that a 3-year bond will pay returns at 4 per cent a year. The bond will be available to pensioners from January 2015. It will help support those who rely on their savings income in retirement.

Commenting Greg Hands said: “There are some 12,000 pensioners living in my constituency of Chelsea and Fulham, as well as over 21,000 people aged over 45, who are due to retire in the next 20 years. Many pensioners have seen their incomes fall as a consequence of the low interest rates prevailing in Britain that have supported the recovering economy. It’s time Britain helped its retirees in return. These radical changes will give pensioners more freedom over their pensions and will help deliver economic security for those retiring. We are backing people who have worked hard and saved hard.”

The 2014 Budget was just the most recent in a line of measures that the Conservative led Government has introduced to help workers maximise their pensions. One of the most important of these is the introduction of Automatic Enrolment, which means all employers must automatically enrol employees in a qualifying pension scheme. As a result, since October 2012, more than 3 million workers have been automatically enrolled in a pension.

Greg added: “Through our previous impotents in the pension system we have secured a basic income for pensioners. Now we are letting them choose what to do with the money they’ve saved. We want to give people more freedom and flexibility, rather than patronise savers by telling them they don’t know how to use their pension pot. It is telling, that in his response to the Budget speech, Ed Miliband did not mention the word ‘pensions’. Not once. Labour had no response to the Budget – they have no plan for Britain.”