The Chancellor George Osborne introduced major changes to pension rule which mark which mark the biggest transformation to the taxation of pensions in almost a century.
Pension rules are being eased and thus, it will be more stress-free for people to redeem smaller pension pots and will no longer be obliged to buy an annuity with their savings. These changes caused a serious fall in the share prices of the main pensions providers, reaching numbers like 8% to 13% down.
The Chancellor also initiated £20 million over the coming two years in order to develop a scheme providing advice with consumer groups and industry bodies. In other words what this means for people who are retiring is everyone who has a pension pot which could be used for purchasing an annuity will be eligible to receive a free and impartial face-to-face advice on the various options. This will also help people who are interested in buying an annuity to find the best possible deal for them.
Even though annuity rates have fallen by half over the last 15 years, most people still have little other options besides buying one. Some people thing that pension rules so far have shown a patronizing view that pensioners cannot be relied on with their own pension pots. Nevertheless, the Chancellor rejects this view and believes that hard-working people who have done the right thing all their lives need to be trusted with their own finances.
Most people who retire choose to buy an annuity with the money they have saved in their pension pot because this gives them a sense of security that they will have a fixed yearly income for the rest of their lives. However, in recent times there has been growing distrust with annuities because rates are falling and new deals are appearing all the time so sometimes staying with your existing pension provider might turn out non-beneficial.
However, the Government has announced that from this month people will be able to have a more flexible access to their savings.
Further changes include cuts in the amount of guaranteed income that someone would need when he retires in order to access the so called flexible drawdown where you can draw off money from your pension pot. Currently, the sum has been £20, 000 per year while now after the changes it will be £12, 000 per year.
Therefore, Budget 2014 can be considered as bringing serious pension reforms.