The Chancellor made some game changing announcements about pensions in his Budget statement this week.
He announced that “no one need buy an annuity with their pension plan” (despite the fact this has been the case for many years).
He followed this up by announcing the removal of all the limitations on taking pension benefits using “income drawdown” rules.
From April 2015 a pesonal pension plan owner can take 25% of its value as a tax free cash lump sum (no change there) and the rest of the fund as income or capital.
These benefits will be subject to income tax at the plan holder’s marginal rate of income tax.
The whole of the 75% balance of the fund can be taken in one go if the plan holder so wishes.
So, rather than the pension plan producing a regular flow of income, instead it might generate one lump sum.
The Government has decided that people should be able to determine for themselves how they use that money. Perhaps we are witnessing the beginning of the end of the ‘Nanny State’?
The introduction of the flat rate State pension benefit – at a level above which no further income support will be available – means that pensioners who ‘waste’ their pension fund capital will then be on their own.
Yesterday Pensions Minister Steve Webb apparently said if someone uses their pension fund to buy a Lamborghini that is up to them.
This helps us to paint an interesting picture of future events where a pension plan holder does exactly that; spends their pension fund on a depreciating asset (not necessarily a supercar) and then has to eek out the rest of their lives on a flat rate State pension which may or may not be enough for them.
Forgive my sense of humour but perhaps we are going to witness two car crashes; one actual one because I think Lamborghini’s can go rather fast and one metophorical one, a crash of future income.
