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This Government believes that individuals should be trusted to make their own decisions with their pension savings
The Chancellor of the Exchequer (Rt Hon George Osborne):
This Government believes that individuals should be trusted to make their own decisions with their pension savings. One of the most important stages in life everybody has to save for is retirement, and one of the biggest financial decisions people will take is what to do with those savings when retiring. Under the old system, only those with very large or very small pension pots could access them with any flexibility. That is why at the Budget I announced the most radical change to how people can access their pension in almost a century. From April 2015, everyone over the age of 55 with defined contribution pension savings will be able to access them as they wish, regardless of their total pension wealth, subject to their marginal tax rate. Those who want the security of an annuity will still be able to purchase one. Equally, those who want to access all of their pension savings will be able to take them as a lump sum. Those who do not want to purchase an annuity or withdraw their money in one go, will be able to keep their pension invested and access it over time, for instance through a drawdown product. These reforms mark a radical departure, by giving choice back to individuals, and since the Budget the government has consulted extensively on how best to implement the changes. I am pleased to say the reforms have overwhelmingly been positively received. Later today I will lay the Government’s full response to the consultation on delivering these changes before Parliament. Before then I wanted to provide a high level summary of the response, information about the resource expenditure for the guidance guarantee and the full details of the decisions with regard to private sector defined benefit pension schemes, which I am setting out in full this morning before markets open.
These reforms create more choices for individuals, and the Government wants people to be equipped and ready to make informed decisions. The right to free and impartial guidance I announced at the Budget will empower savers and ensure that they are clear on their retirement income options before they make any decisions about what to do with their savings. Given the need for guidance to be trusted by savers, I can confirm today that the guidance guarantee will be provided by independent organisations – with no actual or potential conflict of interest – in order to ensure complete impartiality. Delivery partners will include the Pensions Advisory Service (TPAS) and the Money Advice Service (MAS).
The Government welcomes expressions of interest from a range of trusted consumer-facing organisations, including Citizens Advice and Age UK, and looks forward to discussing further with these and other independent organisations how they can be involved. The Treasury has obtained approval for an advance from the Contingencies Fund of £10,000,000 (out of the £20,000,000 development fund for the guidance guarantee announced at Budget) for preparatory work for the guidance guarantee in advance of Parliament’s approval. Parliamentary approval for additional resource of £10,000,000 for this new expenditure will be sought in a Supplementary Estimate for HM Treasury. Pending that approval, urgent expenditure estimated at £10,000,000 will be met by repayable cash advances from the Contingencies Fund.
The repayment is expected to be made in the financial year 2014/15. I can also confirm today that a new override will be introduced to ensure that pension schemes are able to offer individuals flexible access to their savings, and the tax rules will be amended to allow providers to develop new retirement income products that are tailored to the needs of individual consumers. The Government wants to maximise freedom and choice for retirement savings, but not if this were to be at the expense of the wider economy. For most defined benefit scheme members, it will be in their best financial interest to remain within their scheme. However, the Government, having considered the issues carefully, agrees with the view of many stakeholders (including the Confederation of British Industry, Association of British Insurers and the National Association of Pension Funds) who have argued it is right to preserve the existing freedom to transfer out of a defined benefit scheme under the new arrangement. The Government will therefore continue to allow transfers from private sector defined benefit to defined contribution schemes, excluding pensions already in payment, subject to additional and important safeguards.
The Government continues to believe that transfers from unfunded public service defined benefit schemes should be banned, in order to protect the Exchequer and taxpayers. Transfers from funded public service defined benefit to defined contribution schemes will be permitted, and safeguards similar to those in the private sector will be introduced where appropriate. The Government will present the document ‘Freedom and choice in pensions: government response to the consultation’ to Parliament and place copies of the document in the Libraries of both Houses.