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| Pension change based on 'highly uncertain assumptions' | Pension change based on 'highly uncertain assumptions' |
| (35 minutes later) | |
| The Budget's pension changes are based on "highly uncertain assumptions" and may lead to "market failure", according to a respected think-tank. | The Budget's pension changes are based on "highly uncertain assumptions" and may lead to "market failure", according to a respected think-tank. |
| The Institute for Fiscal Studies (IFS) said the changes were "one of the biggest shake ups seen in a long time". | The Institute for Fiscal Studies (IFS) said the changes were "one of the biggest shake ups seen in a long time". |
| But it questioned estimates about the increased tax revenue the new scheme would initially generate, and said it could create "losers". | But it questioned estimates about the increased tax revenue the new scheme would initially generate, and said it could create "losers". |
| The IFS also queried how other tax cuts would be funded. | The IFS also queried how other tax cuts would be funded. |
| Chancellor George Osborne expects the pension changes to increase government revenues, at least in the first few years, because more people will be able to make taxable withdrawals from their funds. | Chancellor George Osborne expects the pension changes to increase government revenues, at least in the first few years, because more people will be able to make taxable withdrawals from their funds. |
| The government predicts increased income tax receipts of up to £1.2bn in 2018-19, based on an assessment that 30% of people in defined pension contribution schemes will opt to take out their pension at a faster rate than via an annuity. | The government predicts increased income tax receipts of up to £1.2bn in 2018-19, based on an assessment that 30% of people in defined pension contribution schemes will opt to take out their pension at a faster rate than via an annuity. |
| 'More expensive' | 'More expensive' |
| But IFS director, Paul Johnson, said that "depends on highly uncertain behavioural assumptions about when people take the money". | But IFS director, Paul Johnson, said that "depends on highly uncertain behavioural assumptions about when people take the money". |
| The IFS calculates that the increased tax receipts will peak in 2018/19 and then decline. Within 20 years the policy will actually be increasing the deficit. | The IFS calculates that the increased tax receipts will peak in 2018/19 and then decline. Within 20 years the policy will actually be increasing the deficit. |
| The chancellor's changes are partly a response to worries that annuities - the most common option for current pensions, which offer a guaranteed income for life - are not giving customers the best value for money. | The chancellor's changes are partly a response to worries that annuities - the most common option for current pensions, which offer a guaranteed income for life - are not giving customers the best value for money. |
| But Mr Johnson said the new rules could create even bigger problems. | But Mr Johnson said the new rules could create even bigger problems. |
| "It will likely make annuities even more expensive for those who do want to buy them. | "It will likely make annuities even more expensive for those who do want to buy them. |
| "The market will become much thinner and there will be greater levels of adverse selection - only those expecting to live a long time will want to buy an annuity, thereby driving up the price. | "The market will become much thinner and there will be greater levels of adverse selection - only those expecting to live a long time will want to buy an annuity, thereby driving up the price. |
| "There is a market failure here. There will be losers from this policy." | "There is a market failure here. There will be losers from this policy." |
| Permanent give-away | Permanent give-away |
| Gemma Tetlow IFS director of pensions, saving and public finances research said: "The chancellor has been getting into some bad habits of late with a series of policies that weaken and increase the risk to the long run public finances. | Gemma Tetlow IFS director of pensions, saving and public finances research said: "The chancellor has been getting into some bad habits of late with a series of policies that weaken and increase the risk to the long run public finances. |
| "In this latest budget he has a £5bn permanent give-away matched by temporary takeaways and uncertain cuts to spending." | "In this latest budget he has a £5bn permanent give-away matched by temporary takeaways and uncertain cuts to spending." |
| The IFS also said that increased choice for pensioners in the way they managed their pensions could lead to more mistakes. | The IFS also said that increased choice for pensioners in the way they managed their pensions could lead to more mistakes. |
| People aged 60 or 65 are known to underestimate their own life expectancy and especially the likelihood of living to extreme old age, he explained. | People aged 60 or 65 are known to underestimate their own life expectancy and especially the likelihood of living to extreme old age, he explained. |
| The chancellor has dismissed fears people might "blow" their pension pots, adding that pensioners were "responsible people who are capable of making decisions about their future". | The chancellor has dismissed fears people might "blow" their pension pots, adding that pensioners were "responsible people who are capable of making decisions about their future". |
| An extension to tax-free childcare has also been criticised by the IFS. The scheme has "been made more generous but magically, at no extra cost," Mr Johnson said. | An extension to tax-free childcare has also been criticised by the IFS. The scheme has "been made more generous but magically, at no extra cost," Mr Johnson said. |
| IFS Senior Research Economist David Phillips said that it was debatable whether £7bn spent annually on child care was money well spent, "as there is little evidence as to whether it increases adult employment or improves children's outcomes." | IFS Senior Research Economist David Phillips said that it was debatable whether £7bn spent annually on child care was money well spent, "as there is little evidence as to whether it increases adult employment or improves children's outcomes." |
| 'Chopping and changing' | 'Chopping and changing' |
| The IFS said that some of the tax increases would not be as effective as they appeared. An increase in the tobacco duty should in theory raise an extra £795m . | The IFS said that some of the tax increases would not be as effective as they appeared. An increase in the tobacco duty should in theory raise an extra £795m . |
| But it said the real number it is only likely to raise £135m because smokers will respond to the increase by cutting down, giving up or smuggling cigarettes. | |
| Mr Johnson praised the "consistency" in increases to personal income tax allowances, and reductions in corporation tax, but criticised "chopping and changing" in business policies like investment allowances. | Mr Johnson praised the "consistency" in increases to personal income tax allowances, and reductions in corporation tax, but criticised "chopping and changing" in business policies like investment allowances. |
| Cuts in savings taxes were also welcomed, but Mr Johnson concluded the Budget still "leaves us with as little sense as we had before of quite how the very large public spending cuts still in the pipeline will actually be delivered". | Cuts in savings taxes were also welcomed, but Mr Johnson concluded the Budget still "leaves us with as little sense as we had before of quite how the very large public spending cuts still in the pipeline will actually be delivered". |