Budget caveat: sting in the tail for savers and pensioners

People will need to be much more financially literate or there'll be a new pensions crisis, says Iain Clacher

elderly people
(Image credit: 2010 Getty Images)

THE CHANCELLOR of the Exchequer, George Osborne, “pulled a rabbit out of the hat” for pensioners and savers with changes to UK pensions that have been hailed as the most significant overhaul to the system since 1921. Simply put, the Chancellor is trying to give the 13m people who find themselves in defined contribution schemes more choice in how they invest their money in retirement.

After the budget announcement, those retiring in a defined contribution scheme will no longer be forced to buy an annuity to guarantee them an income over their retired life. As well as this, the 55% rate of tax charged on lump sum withdrawals over 25 per cent of the value of the pension pot will be abolished, and any withdrawal above the 25% threshold, will now be taxed at the marginal rate. Are these sweeping changes? The answer is yes. Whether they are good is another issue.

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