Over 55s given ‘freedom to choose’ over pension pot spending

The UK government set out its plans on Tuesday to give pensioners and workers aged 55-plus the freedom to spend their pension funds much as they please.

George Osborne
Until now, apart from being able to withdraw a lump-free sum of up to a quarter of the value of their pension pots, pensioners have had to take out an annuity or another financial product with their savings.Chancellor of the Exchequer George Osborne said on Tuesday that, under the new Pension Tax Bill – which was foreshadowed in the Budget statement earlier this year – people would be “free to choose what they do with their money” from next April.If lump sums are withdrawn, a quarter will be tax-free and the remainder taxed at the prevailing marginal rate of individuals. Mr Osborne described the scheme as “central to our long-term economic plan”.He added, “People who have worked hard and saved all their lives... will be able to access as much or as little of their defined contribution pension as they want and pass on their hard-earned pensions to their families tax free.“For some people an annuity will be the right choice whereas others might want to take their whole tax free lump sum and convert the rest to drawdown.“We've extended the choices even further by offering people the option of taking a number of smaller lump sums, instead of one single big lump sum.”Despite concerns that some pensioners could embark on a spending spree and leave themselves short of funds in later life, Ros Altmann, a pensions expert and government adviser, told the Daily Mail, “The government’s changes have the potential to help millions of pension savers make better use of their pension funds. Being free to access their money freely as they need to, rather than being forced to buy particular products, will be very popular.“It’s something you couldn’t do ever before because of the inflexibility of the system. As soon as you wanted to take any money at all out of your pension fund, you had to secure an income with the remainder. So you had to buy an annuity or a drawdown product.“Now you will have the freedom to do what you want. However, people need to know that their pension provider will allow them to take advantage of the new freedoms.“Currently, most pension companies are not ensuring that their customers can take money out flexibly. I call on the industry to make sure people can really benefit from the new changes as quickly as possible.”

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