Radical reform to pensions in Chancellor's 2014 budget
Chancellor George Osborne’s budget delivered radical reforms to pensions but gave property buyers little cause for cheer.
The annuities markets were left reeling by Osborne’s decision to free pension-holders from the obligation to purchase an annuity—pensioners will instead be able to withdraw as much cash as they want at normal income tax levels after the 25% tax free lump sum, and to invest as they choose. Those approaching retirement age will be given access to free independent advice. A new investment vehicle for the over-65s, pension bonds, will be introduced, offering returns of up to 4%, while the ISA limit has been increased to £15,000 per year.
James Borshell, senior associate in the pensions team at Dentons, says the annuity market has been struck “a major blow” and “if [it] is to survive it will need to take a serious look at how it is going to compete in this new market”.
“The level of government intervention to deal with the issues raised is bordering on startling. Rather than the usual tweak to the annual and lifetime allowances, coupled with plans to conduct a study to do something at a later date, we are looking at something of a brave new world for pensioners and the annuity industry.”
Rosalind Connor, partner at Taylor Wessing, says: “It is important to understand how the new financial advice will be provided and the extent to which employers (with both occupational and personal money purchase schemes) will be required to facilitate access.”
Tony Clare, pensions advisory partner at Deloitte, says: “Reforming income drawdown rules is long overdue.
“It will make pensions more flexible and attractive. Income drawdown accounts for about 15% of the UK's £11bn annuity market and these changes will make it much more widespread.
“About 400,000 people buy an annuity every year and many could increase their retirement income by about 15% a year using income drawdown. Giving people free advice at the point they make retirement decisions is an excellent idea.”
On property, the Chancellor was less generous. There will be no reduction of stamp duty land tax (SDLT). However, the threshold for the 15% SDLT rate paid by ‘non-natural persons’ such as offshore companies investing in residential property has been lowered from £2m to £500,000.
There was good news for businesses, with the doubling of the annual investment allowance for capital expenditure on qualifying plant and machinery to £500,000 for the next year. This gives businesses 100% tax relief for that expense.
Comments courtesy of the LexisNexis Current Awareness team.
