I outline below how the budget will help pensioners through reforms to the pension's system and ISAs.
Pensioners will benefit from the Budget by the improved rates for savings that we’re going to offer through our new pensioner bonds, through reforming the way that ISAs work, which again will make it much easier to save money, and crucially a radical change in the pension system. So people will no longer have to take out an annuity and they’re in change of how much they draw down from their pension, and when they do it.
The biggest change that came about from the Government were towards the rules concerning savings and investments for pensioners, and some really important changes, that I know people have been asking for, for a long time. Firstly, anyone that has a pension, a private pension that they have put money into, will no longer have to take out an annuity, this has been a big cause for complaint for pensioners for a long time. There have been some very poor products out there, that people have had to take out as annuities. It has been compulsory to take them out and the rate of return they get has been very low. People feel that they have worked and saved all their life to build up a pension pot and when they come to draw out of it, they don’t get as much money as they had been expecting. So no longer having to take out an annuity is a really important reform to the way that pensions work.
We’ve done some other things as well, a lot of pensioners have savings elsewhere. They understand that the rate of their savings is often quite low because interest rates are low; the interest rate from banks are not very generous. People are sitting on the cash savings and not working as hard as for them as they used to, so the government is going to create some new products that will be available for pensioners, which will give them a much better rate of return. These will be investment bonds that will be available to take out. For example, a three year investment bond, will yield 4% annual return. That’s much better than anything you can get from the bank at the moment and will make a big difference.
The other thing we’re reforming to help all savers is the ISA, so we’re going to have one new ISA, which will have an investment limit of £15,000 a year. You can invest cash and in stocks or shares. So there will be one type of ISA and you can invest a lot more in it. These three measures are really good news for pensioners and for savers, with much more flexibility on private pensions, no more annuities, a new generous investment saving scheme, new bonds available for pensioners and finally a reform to the ISA.
I think this will not only be welcomed by everyone who has got investments and savings at the moment, it will actually create a much bigger incentive to put a little bit of extra money aside. Because you know that when you need it, it will be there for you and it’ll be there to use as you want and also work harder for you until you need it. These changes will be a benefit to all pensioners and savers across the country. There are a lot of pensioners in Folkestone and Hythe who have been concerned about the rate of return they have been getting on their savings and annoyed about the lack of flexibility on how they use their private savings in their pension pot when they want to draw down from it, so this will be greatly welcomed.
The other thing we are changing with private pensions, is that we’re getting rid of the punitive tax rate, that made drawing down from your pension quite expensive; people could have a tax free lump sum of 25%, but they might be charged up to 55% from drawing down from their pension pot. This tax rate will go down to as low as 20%, so it’ll make a very big difference for people drawing out of their pension pot.
When you retire you can draw out as much of your pension pot as you want to, so you won’t be limited to drawing out the cash free amount, you can withdraw the whole lot if you want to, but will only be tax free on the first 25%. There will be complete flexibility on how you use the savings you have built up and we believe that you should trust people to do what’s best for them and how they use their savings.
These are the key measures that affect pensioners in this year’s Budget, but I’m interested in what you think, and you can have your say by visiting the ‘have your say’ section of my website, which can be found at www.damiancollins.com.