Chancellor George Osborne’s budget has focused on the need to support the recovery whilst still paying close attention to austerity plans.
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Within this sentiment is the Chancellor’s new measures to secure the ‘grey vote’ by scrapping many of the restraints on how new UK retirees can save and manage their pension provisions.
In what is being heralded as the most significant raft of changes to hit the pension market since 1921, the measures include the scrapping of the forced annuity, a new bond which bestows higher interest rates for pensioners and more flexible tax-free savings plans.
Across the UK both pensioners and savers have witnessed shrinking savings since the global financial crisis wracked the market.
With just over a year to go until the next general election, Osborne has faced pressure from within his party to help core votes, many of whom have either expressed interest or been lured away from the Conservative party by UKIP – the anti-European UK Independence Party.
Instead of being forced to use their pension pot to buy an annuity upon retirement, 13 million UK pension savers with defined contribution plans – the pension saving option where the individual worker, the employer, or both contribute to the pension on a regular basis – can now withdraw money in increments or in its entirety.
The 55% tax rate on withdrawing from a pension fund at the start of retirement will also be scrapped.
A charge of 20% will be levied instead for most savers.
Osborne told the House of Commons that the move allows savers to control their own money by granting them “complete freedom to draw down as much or as little of their pension pot as they want, anytime they want.”
Partnership Assurance, a specialist annuity company, lost just over half its share value after the news broke, reflecting a trend seen across the annuity market.
Improved economic outlook
Osborne argued that the improved economic outlook meant four years of austerity had worked.
This formed the backbone of his defense against Labour claims the Conservative government has, overall, left families worse off.
Britain’s fiscal watchdog the Office for Budget Responsibility (OBR) increased its 2014 growth forecast to 2.7% from the 2.4% projected in December 2013.
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