Osborne confirms pension plan
Annuities holders to get more options over savings
The government will remove the 55% tax charge, or up to 70% in some cases, so that annuity holders will only be taxed at their marginal rate.
Chancellor George Osborne intends to introduce the change from next April.
Next month sees the first phase of pensions “freedoms” when those coming up for retirement will have greater choice over how to use their savings pots, including the option to put their money into drawdown and access it gradually as they choose.
The latest change will extend these freedoms to a further five million people who have already bought an annuity.
Mr Osborne said: “There are 5 million pensioners who are locked into annuities they have already bought. They should have the same freedoms as we have given everyone else.
“For most people, sticking with that annuity is the right thing to do. But there will be some who would welcome being able to draw on that money as they choose- the same freedom we are offering those approaching retirement in April this year.
“So I am going to change the law to let that happen, and make sure we have the right guidance in place.’
The idea was first proposed by pensions minister Steve Webb in January.
Joanne Segars, chief executive at the National Association of Pension Funds, said: “It’s clear to see how this fits with this Government’s agenda for pensions but what is less clear is how savers will be protected. A full consultation will be essential to ensure a fair and balanced market is created.
“The consultation would need to look at how the buy-back price of an annuity would be calculated so people selling their annuity could be assured of good value; and also consider a prescribed process for introducing buyers and sellers to avoid excess costs, which would inevitably be carried by the consumer. And clearly, if this comes into effect the Pension Wise service would also have to be equipped to provide thorough guidance on this topic.
“This suggested reform should not distract us from or undermine the Freedom & Choice reforms which are due to begin imminently. The Government will need to make sure this doesn’t divert focus or resource from Pension Wise, damage the broader annuity market or slow down the development of a much-needed market in retirement solutions.”