Are Pension Freedoms becoming out of control? Are too many people releasing their full pension early, rather than purchasing an annuity or another phased-payment system? George Osborne’s reforms were designed to give people freedom from being forced into standard annuity packages, which may have suited the insurers more than the individuals…. but has the pendulum swung too far in the opposite direction? Or has the whole thing become a cash cow for the government, with retirees paying more tax more quickly than they previously would?
In ProfessionalAdviser, the argument is being discussed –
“When George Osborne talked about freeing retirees from the deathly grip of annuities in his 2014 Budget speech, it was clear the former Chancellor had two prime objectives… The first was shaking the branches of a lumbering insurance market that had for too long milked savers by shovelling them into guaranteed retirement income products. The weakness of the supply side meant the profit margins on annuity business were sky-high and, importantly, dividend-hungry shareholders needed feeding. The approach was relatively simple – pile ‘em high, sell ‘em expensive… The second, arguably more pressing, motivator was money. With growth still anaemic, Osborne needed something to bolster the Treasury coffers – and if it could win popular support, all the better… By handing savers total flexibility over how they spend their retirement pot, the Treasury knew some would take a higher income than if they had bought an annuity – pushing them into a higher tax bracket in the process. Equally, others who were not planning on taking their pension pot at all might decide to take some or all of it in one go, again boosting tax take.”