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| Version 4 | Version 5 |
|---|---|
| Pension savers set to get more flexibility | Pension savers set to get more flexibility |
| (about 3 hours later) | |
| Changes to rules on pensions that may give savers more freedom have been announced by the government. | |
| From April 2011, there will be no obligation to buy an annuity from an insurance company with money saved in a personal pension, the Treasury says. | From April 2011, there will be no obligation to buy an annuity from an insurance company with money saved in a personal pension, the Treasury says. |
| More flexible options will include continued investment or moving to a process called "income draw-down". | More flexible options will include continued investment or moving to a process called "income draw-down". |
| But a limit will still be imposed on the amount of money most pensioners can take from their fund at any one time. | But a limit will still be imposed on the amount of money most pensioners can take from their fund at any one time. |
| Annuity | Annuity |
| An annuity is a financial product that guarantees a set retirement income for the rest of your life and is bought using pension savings. | An annuity is a financial product that guarantees a set retirement income for the rest of your life and is bought using pension savings. |
| However, when the annuity-holder dies, none of that money gets handed down to family members. | However, when the annuity-holder dies, none of that money gets handed down to family members. |
| In 2009, some 450,000 people bought an annuity and 200,000 were drawing on their funds with the alternative "income draw-down" method, Treasury figures show. | In 2009, some 450,000 people bought an annuity and 200,000 were drawing on their funds with the alternative "income draw-down" method, Treasury figures show. |
| The proposed law, as promised in the June emergency Budget, will remove the effective obligation to buy an annuity by age 75. | The proposed law, as promised in the June emergency Budget, will remove the effective obligation to buy an annuity by age 75. |
| However, the new law will stop people spending all their pension savings and then falling back on the state. | However, the new law will stop people spending all their pension savings and then falling back on the state. |
| The maximum most pensioners will be able to draw in any one year will be the equivalent of the single person annuity that they could buy with their pension pot. | The maximum most pensioners will be able to draw in any one year will be the equivalent of the single person annuity that they could buy with their pension pot. |
| Only those who can show they already have pension income of at least £20,000 a year - for instance from a combination of the state pension and a company pension - will be able to take more from their personal pension pots. | Only those who can show they already have pension income of at least £20,000 a year - for instance from a combination of the state pension and a company pension - will be able to take more from their personal pension pots. |
| They will be able to withdraw any additional personal pension fund money in one go, without restriction, though still subject to income tax. | They will be able to withdraw any additional personal pension fund money in one go, without restriction, though still subject to income tax. |
| Benefits | Benefits |
| "Those with large pension funds and other sources of income... are likely to benefit most from any enhanced flexibility," said George Bull of accountants Baker Tilly. | "Those with large pension funds and other sources of income... are likely to benefit most from any enhanced flexibility," said George Bull of accountants Baker Tilly. |
| "Most contributors are still likely to opt for an annuity, which will more or less provide a guaranteed income for life," he added. | "Most contributors are still likely to opt for an annuity, which will more or less provide a guaranteed income for life," he added. |
| The new pension legislation will form part of the 2011 Finance Bill. | The new pension legislation will form part of the 2011 Finance Bill. |
| "The new rules will mean that you will not need to buy an annuity from a life insurance company, you can just drain your pension savings directly instead," said annuity expert Billy Burrows. | "The new rules will mean that you will not need to buy an annuity from a life insurance company, you can just drain your pension savings directly instead," said annuity expert Billy Burrows. |
| "However, the government intends to increase the tax rate from 35% to 55% on any lump sum left over to your inheritors from this pension pot when you die." | "However, the government intends to increase the tax rate from 35% to 55% on any lump sum left over to your inheritors from this pension pot when you die." |
| Joanne Segars, chief executive of the National Association of Pension Funds, said: "Such extra flexibility can be useful, but these changes will mainly benefit those with larger pensions and multiple income streams. | |
| "Annuity rates may have fallen recently, but the guaranteed income they offer is usually the best option. We think most people will still end up choosing an annuity. | |
| "The real problem is that people are simply not saving enough into their pension pot in the first place." |