Annuities favoured over guaranteed drawdown products, figures reveal

Those searching for a guaranteed income in retirement are choosing annuities as opposed to drawdown-annuity products, new figures suggest.

During the first year of pension freedoms being available to individuals, software firm Selectapension found that 33% of savers had chosen a guaranteed income. However, of this percentage, only 1.98% selected guaranteed drawdown products, whilst 98.02% chose traditional annuities.

pension

Meanwhile, figures released earlier in the year by the Financial Conduct Authority (FCA) revealed that the number of savers choosing to take their pension pot savings as cash decreased at the end of 2015.

65,610 individuals withdrew cash from their pension pot between the months of October and December, representing a fall of 42% from the previous quarter, when a total of 113,100 savers made full cash withdrawals from their savings.

The FCA’s data also revealed that, during the same period, 127,094 pension pots were accessed for the first time, either taken entirely in cash or partially drawn down as an income. This number is down from a figure of 197,443 during the previous quarter, constituting a 36% decrease.

Additionally, the figures suggested that those aged between 55 and 59 had the highest rate of withdrawals as a percentage of their pension pot, with 11% of savers in this age group taking an income of 10% or more from their savings.

New rules provide savers aged 55 and over with full access to their pension pot. These rules permit individuals to cash in up to 25% of their savings as a tax-free lump sum.

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Initial rush to cash in pension pots ‘has ended’, says regulator

There has been a gradual decline in the numbers of people releasing cash from their pension pots early, a year after rule changes allowed them to do so, according to a report published by the Financial Conduct Authority (FCA).

Since 6 April last year, savers have been able to release cash from their pension pot, subject to the normal rates of income tax, from the age of 55 (whereas previously retirees could take 25% of their pot in a tax-free lump-sum but would have to pay a 55% charge on the remainder).

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Critics of the changes feared that they would lead to irresponsible spending, leaving people vulnerable in their old age – but the FCA’s figures suggest that the reality has been more mundane, and that, after an initial rush, interest in withdrawing cash lump sums has waned.

In the first three months after the April 2015 changes, some 222,000 pension pots were accessed to withdraw some or all of the money as cash, but the latest data revealed that the quarterly total had fallen to 127,094.

It has been suggested that this shows that an initial rush of savers emptying small pension pots, perhaps to save in other vehicles or to use for holidays, has ended.

Meanwhile, data given to the BBC by investment management firm Fidelity International suggested that retirees who call with questions have been most likely to ask about the tax-free element of their pension pot, and how to use this primarily for day-to-day spending.

According to the BBC, among those taking tax-free cash from their pension, the most popular use (18.5%) was topping up income, followed by reinvesting in other savings vehicles (17%). Only 5% used the money to invest in buy-to-let property, and 1% used it to fund a wedding.

Insurance group calls for new flat rate of pension tax relief

The Association of British Insurers (ABI) has outlined why the introduction of a new ‘Savers’ Bonus’ – a single rate of tax relief – would prove to be a ‘fairer’ and more sustainable system for pensions savings.

The bonus, if implemented by the Government, would treat all taxpayers equally.

The ABI also hopes that the scheme would encourage more people to save for their retirements.

pension davings

Currently, those with higher incomes benefit from tax relief of up to 40% or 45%. Other taxpayers only receive relief of 20%.

The ABI has suggested that the new Savers’ Bonus would ‘top up’ pensions equally for all savers. It also argues that the initiative would bring ‘simplicity’, ‘fairness’ and ‘sustainability’.

Yvonne Braun, Director of the Long Term Savings Policy at the ABI, stated: ‘The Savers’ Bonus would provide a massive boost to the average worker’s savings who is in most need of help to build their retirement pot.

‘The ABI has long called for reform to the pension tax relief system to ensure that the maximum number of people, especially those on low to middle incomes, save for their retirement.’

However, other pensions industry experts disagree with the ABI’s proposal, stating that a single rate of relief would be of little benefit to savers.

Chancellor George Osborne is expected to make an announcement regarding pensions tax relief in his Budget on 16 March. This will follow a seven-month inquiry by the Treasury into the matter.

We will be providing a summary of the key announcements from the Chancellor’s Budget, so please visit our website often.

Warning over pension scams

Savers have been urged to be aware of a rise in pension scams, as criminals seek new ways to defraud pensioners.

A report by Citizens Advice studied 150 cases where pensioners have fallen victim to fraudsters. It identified five common types of scams which include encouraging pensioners to move their savings into a ‘new’ pension, fake investment opportunities and offering apparently ‘free advice’ and support which actually costs money.

In some cases pensioners are charged a fee for a service that isn’t required, while others are encouraged to part with personal information and bank details, either by email or phone.

‘Scammers see pensioners as a prime target,’ commented Gillian Guy, chief executive of Citizens Advice. ‘There are many people looking to benefit from the new pension rules, including scammers. Fraudsters can ruin people’s retirement plans by taking a portion or all of a victim’s pension pots.’

Meanwhile, the Pensions Regulator recently launched a campaign to alert people, particularly those approaching age 55, to the danger posed by fraudsters.

From 6 April 2015 individuals are no longer required to purchase an annuity at 55 and can instead choose to take all their savings as a cash lump sum. However, the Regulator has warned that scammers are exploiting this change by enticing retirees with the promise of a ‘free pensions review’, ‘one-off investment opportunity’ or ‘legal loophole’, most of which are bogus.

Individuals who believe they are being targeted by a pension scam should contact the Pensions Advisory Service on 0300 123 1047. The Financial Conduct Authority’s website also has a list of known scams (see scamsmart.fca.org.uk).

2015 Budget Special: all the news

2015 Budget Special : measures for savers

The Chancellor’s Budget Speech focused on four key areas, which formed the foundation of proposed Government policies for the next few years.

As previously announced, up to five million pensioners are being given the opportunity to cash in their existing pension annuities. When the changes come in, savers will be allowed to take their whole pot in a single lump sum, or make withdrawals as they see fit.

The new flexible ISA will allow individuals to withdraw their savings and then make further investments up to their annual allowance, without being penalised, so long as the transaction occurs within the same tax year. From 6 April this year, the ISA allowance will be set at £15,240.

The Help to Buy: ISA, which combines an ISA with the Help to Buy scheme for first time house buyers, means that the Government will top up savings by £50 for every £200 saved. These ISAs are intended to help individuals save for a mortgage deposit. Government contributions will go up to a maximum of £3,000 per Help to Buy: ISA.

Additionally, the Personal Savings Allowance means that the first £1,000 of savings income will be free from tax for most individuals from April 2016.

The Chancellor said that these measures will create tax-free banking for almost the entire population.

2015 Budget Special: the political reaction

Chancellor George Osborne unveiled a number of measures in his Budget Speech today, revealing employment figures and growth predictions for the rest of the decade. He spoke positively on the progress that the Government has made in reducing the deficit and the possibility of a budget surplus. However, the other political parties were less encouraged.

In response to the Budget Speech, Leader of the Labour Party, Ed Miliband, said: ‘The working people of Britain are worse off under the Tories . . . and since the election working people’s living standards are £1600 a year down’.

He continued: ‘Today the Chancellor simply reminded people of the gap between the Chancellor’s rhetoric and the reality of peoples’ lives’.

Green Party leader Natalie Bennett described Mr Osborne’s tone as ‘triumphalist’, and said: ‘It’s not like our current growth economy has delivered for people’s lives. What we need to do is invest in a huge range of things’.

Stewart Hosie, Scottish National Party (SNP) deputy leader and Treasury spokesman, commented: ‘Today George Osborne could have delivered a Budget focused on delivering economic growth by tackling inequality.

‘He has not – he has decided to continue with his utterly failed austerity agenda.’

Prime Minister David Cameron defended the Government’s successes, saying: ‘The highest employment rate in our history is not a dry fact, it means more people with the security of a pay packet and a brighter future’.

2015 Budget Special: ‘Britain is walking tall again’, proclaims Chancellor

Chancellor George Osborne delivered his 2015 ‘pre-election’ Budget in bullish mood. Proclaiming that ‘Britain is walking tall again’, the Chancellor announced that the national debt target has been met and predicted the ‘end of austerity’ a year early.

The Office for Budget Responsibility has revised economic growth slightly upwards from 2.4% to 2.5% for 2015, while inflation has been revised down to 0.2%. A budget surplus of 0.2% has been forecast for 2018/19, with borrowing levels revised downwards from the previous Autumn Statement forecast, to £90.2bn for 2014/15.

However, despite a £6bn windfall resulting from lower oil prices and welfare costs, the Chancellor announced that further savings to the tune of £30bn would be needed by 2017/18.

While keen to emphasise the benefits of ‘sticking to the fiscal path’, the Chancellor found room for a number of measures for individuals and businesses.

Among the headline measures for individuals was the announcement of plans to scrap annual tax returns, replacing them with ‘digital tax accounts’. The income tax personal allowance will also rise to £10,800 next year and £11,000 the following year, while the higher rate threshold will see an above inflation rise from £42,385 to £43,300 by 2017/18. Meanwhile, the pension lifetime allowance will fall from £1.25m to £1m from 2016/17.

The Chancellor also unveiled some key reforms for savers, confirming that 5m existing pensioners will be given access to their annuities from 2016. In addition, cash ISAs are set to be made more flexible from the Autumn. A new personal savings allowance will make the first £1,000 of interest on savings tax-free for most savers, while first time buyers will be offered a helping hand onto the property ladder, via a new Help to Buy ISA.

Having already confirmed the launch of a business rates review in the run-up to the Budget, the Chancellor announced that the planned reduction in the Annual Investment Allowance to £25,000 will no longer take effect from 1 January 2016. Additional news for businesses included further measures aimed at supporting regional growth and tax cuts for the North Sea oil and gas industry.

Other measures announced include a 1p cut in beer duty, together with a cancellation of September’s planned fuel duty increase, which the Chancellor claimed would cut the price of a tank of petrol by £10.

2015 Budget Special: the business reaction

CBI Director-General, John Cridland, said: ‘It’s positive that the Government has accepted the independent Low Pay Commission’s (LPC) recommendations on the adult and youth rates. The Commission struck a careful balance, helping many low-paid workers without damaging their job prospects’.

However, he voiced concern that the Government chose to increase the minimum wage for apprentices to higher than recommended.

EY Managed Services Partner, Graeme Swan, reacted to plans to completely abolish self-assessment tax returns, saying it is ‘a necessity and a reality in the digital world we live in. The move to an online individual tax account will make it much easier and simpler for customers’.

In response to the proposed pensions changes, allowing individuals to trade their annuities, TUC General Secretary, Frances O’Grady, said: It’s hard to see how such a trade in so-called ‘death bonds’ could work without a strong risk that many retired people will get a poor deal’.

John Longworth, Director General of the British Chambers of Commerce (BCC), said: ‘The Budget unveiled today recognises both short-term and electoral horizons and long-term economic needs. The Chancellor’s focus on business growth and prosperity will receive a warm welcome from businesses of all sizes’.

‘Businesses in every corner of the UK want more sustainable public finances, and they also want governments to take steps to support growth. Once again, it appears that the Chancellor has pulled off a difficult balancing act, maintaining fiscal discipline while ensuring that necessary deficit reduction doesn’t undermine the UK’s growth prospects.’

2015 Budget Special: the business reaction

CBI Director-General, John Cridland, said: ‘It’s positive that the Government has accepted the independent Low Pay Commission’s (LPC) recommendations on the adult and youth rates. The Commission struck a careful balance, helping many low-paid workers without damaging their job prospects’.

However, he voiced concern that the Government chose to increase the minimum wage for apprentices to higher than recommended.

EY Managed Services Partner, Graeme Swan, reacted to plans to completely abolish self-assessment tax returns, saying it is ‘a necessity and a reality in the digital world we live in. The move to an online individual tax account will make it much easier and simpler for customers’.

In response to the proposed pensions changes, allowing individuals to trade their annuities, TUC General Secretary, Frances O’Grady, said: It’s hard to see how such a trade in so-called ‘death bonds’ could work without a strong risk that many retired people will get a poor deal’.

John Longworth, Director General of the British Chambers of Commerce (BCC), said: ‘The Budget unveiled today recognises both short-term and electoral horizons and long-term economic needs. The Chancellor’s focus on business growth and prosperity will receive a warm welcome from businesses of all sizes’.

‘Businesses in every corner of the UK want more sustainable public finances, and they also want governments to take steps to support growth. Once again, it appears that the Chancellor has pulled off a difficult balancing act, maintaining fiscal discipline while ensuring that necessary deficit reduction doesn’t undermine the UK’s growth prospects.’

New pension changes to be announced

New pension changes to be announced

14 Oct 2014

With details to be set out in parliament, the Treasury is offering savers more freedom over their pension pots.

Current rules allow people over the age of 55 to withdraw 25% of their pension as a tax-free amount. The new changes will mean that those savers can dip into their pension pots whenever they like, and each time 25% will be tax free.

Chancellor George Osborne said: ‘People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long-term economic plan.

‘From next year they’ll be able to access as much or as little of their defined contribution pensions as they want and pass on their hard-earned pension to their families tax free.

Previous announcements on pensions this year have included flexible access to pension pots for up to 320,000 individuals, and the ability to pass on unused defined contribution funds to a nominated beneficiary upon death, foregoing the 55% tax charge.