Pensioners are now free to do whatever they want with their retirement savings as the chancellors promised scrap of compulsory annuities comes into force in a major bombshell for the pensions industry.
In the biggest pensions shakeup for over 100 years George Osborne said: “Let me be clear: No one will have to buy an annuity … People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances.”
From today, pensioners will be able to take control and cash in Defined Contribution (DC) pension savings. But the Institute for Fiscal Studies (IFS) has said many people face paying out tens of thousands of pounds in income tax if they decide to cash in their pensions pots or be hit hard by pension scams.
420,000 people buy annuities worth £14bn annually, these transform a person's pension savings into an income which lasts for the rest of the person’s life. However, falling interest rates and rising longevity have seen payouts falls to an all-time low in recent years. Annuities are often harshly criticised as offering poor value and for dying with the pensioner, rather than becoming part of an estate.
Osborne unveiled a series of reforms which came into force on 27 March, abolishing several technical rules that will mean pensioners can take more of their savings as cash immediately. He also promised to remove all remaining tax restrictions on access to pension pots by April 2016. “Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, any time they want. No caps. No drawdown limits.”
