George Osborne’s crunch pre-election Budget will give savers who already own an annuity the power to cash it out. This new loosening of pensions rules builds on changes in last year’s Budget, and was confirmed by the Treasury yesterday.
Charlotte Henry, Caitlin Morrison
The Treasury says that it will give greater flexibility to five million pensioners who already own an annuity from April 2016, without unwinding the original contract.
Chancellor George Osborne commented: “There are five million pensioners who are locked into annuities they have already bought. They should have the same freedoms as we have given everyone else. So I am going to change the law to let that happen, and make sure we have the right guidance in place.”
Companies who originally issued the annuities will not be able to buy them back. Instead, the Treasury hopes to create a market for investors. They would receive the monthly income from the annuity for the duration of its existence, while the pensioner would receive a cash lump sum to use however they wish.
The changes build on changes that were announced in the last Budget, to allow those who had not already bought an annuity to cash in their pension pot.
Independent pensions expert Ros Altmann welcomed the move. She said: “I think it is a very good move to allow people to undo the annuities they may not want and never wanted to buy.”
“Most people will probably stick with their annuities anyway”, she noted.
Just Retirement chief executive Rodney Cook told City A.M.: “We will certainly be interested in buying annuities if it goes ahead. From our point of view we think it’s a positive opportunity for our business.”
Meanwhile, Joanne Segars, chief executive of the National Association of Pension Funds, called for more clarity on how those pensioners selling their annuities would be protected.
THE INSTITUTE OF ECONOMIC AFFAIRS
■ The Institute of Economic Affairs thinks the government should impose a “double-lock” on the uprating of thresholds over the next parliament (raising thresholds by the rate of increase in prices or wages, whichever is higher). Thereafter, thresholds for all taxes (not just income taxes) should be automatically updated in line with wage growth.
■ Abolish the 45p income tax rate and increase the 40p threshold significantly.
■ Replace council tax with an tax on imputed rent for homes worth more than £1m, or a tax on imputed rent on all but primary residences.
■ The bank says: “The chancellor has received positive news on the public finances, which should allow him to provide some modest electoral sweeteners at the same time as claiming that plans to reduce the deficit are on track. We do not expect a material alteration to the fiscal plans announced three months ago – what the chancellor gives with one hand is likely to be taken back (more surreptitiously) with the other. The improved public finances may even allow him to go further, raising the income tax threshold by more – a policy that could politically benefit both the Lib Dems and the Conservatives.”
EY ITEM CLUB
■ The government’s fiscal watchdog is expected to revise down its borrowing forecast for 2015-16 giving the chancellor a £6bn war chest, according to the EY Item Club – a group of economists.
■ Expect some relief for the North Sea industry in the form of lower corporation tax for those companies investing in the UK. The chancellor may also choose to press ahead with a further increase in the tax free personal allowance or use the Budget to provide details around the reform of business rates, the group of economists expects.
■ IHS think George Osborne will be keen to pull at least one rabbit out of the hat to impress voters.
■ The chancellor will want to present the Conservatives as the party of economic and fiscal discipline. It seems likely that any giveaways will be largely funded by savings elsewhere and by the budget deficit likely coming in modestly below expectations in 2014-15.
■ Osborne may raise the level at which workers begin to pay income tax. It would counter Labour’s cost of living criticism and is a move the Conservatives and Liberal Democrats could agree on.
■ A rise in the personal tax allowance is likely, Capital Economics said. George Osborne could increase this April’s rise and announce a further rise for next April too.
■ For pensioners, one of the Conservatives’ core groups of voters, we could see an extension of pensioner bonds and further pension reforms, allowing pensioners to sell their annuities for cash.
■ For firms, Osborne might extend his previous rise in the investment allowance, while a cut in tax for the oil and gas sector seems all but certain.
TRADES UNION CONGRESS
■ The Trades Union Congress thinks George Osborne should allow immediate borrowing powers for the UK’s state investment banks (British Business Bank and Green Investment Bank).
■ Use public financing to provide millions of new homes and protect social security from further cuts.
■ Address funding gaps in both the NHS and local government and an immediate reversal of the decision to cut the adult skills further education budget by 24 per cent this year.