OSBORNE red and blue

“I am announcing today that we will legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots. Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. No caps. No drawdown limits. Let me be clear. No one will have to buy an annuity.” – George Osborne, Budget Speech 2014.

A few moments before, the Chancellor had announced the first steps on the road to ending the requirement on older people first to sink a lot of money into an annuity and later to get only a little of it back (unless they reach their 80s or 90s).

He told the Commons that he would cut the income requirement for flexible drawdown, raise the capped drawdown limit from 120 per cent to 150 per cent, increase the size of the lump sum small pot five-fold to £10,000 and almost double the total pension savings that can be taken as a lump sum to £30,000.

Osborne drove through the change, but the philosophy behind it was perhaps best set out by the Chancellor’s Liberal Democrat ally, Steve Webb. “If people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice,” he said.

The Pensions Minister added later that “It is people’s own money,” he said. “We are not going to cast them adrift. We will guarantee them guidance, information, education but…if they want to spend their money sooner rather than later, we are treating people as adults.”

Webb did most of the work in bringing in the Single Tier Pension, the fruit of the opposition to Gordon Brown’s mass means-testing that he and David Willetts shared when they were leading on pensions for their respective parties in opposition.

Elsewhere, Osborne has abolished the 55 per cent tax on pension pots and enabled anyone who dies before the age of 75 to pass on their pension pot completely tax-free.  Raising the inheritance tax threshold for married couples and civil partners would further this progress.

This is not to claim that the pensions policy is perfect, that the policy balance between older and younger people is right – or that government hasn’t helped to create some of the problems that the Chancellor has sought to address in the first place.

After all, a deliberate aim of quantitative easing is to keep interest rates low. Osborne’s pensions moves are thus seeking to help solve a problem that is partly of government’s own creation.  The pensions “triple lock” is arguably unsustainable.

Certainly, the universality of the free bus pass, winter fuel allowance and free TV licence is a boondoogle.  And while it is not necessary to go as far as Dr Philip Lee, who has described pensioner bonds as “intergenerational theft”, they represent government paying out money that it hasn’t got.

None the less, the Government’s and the Chancellor’s instincts on pensions are right.  They favour more freedom and responsibility – and they have been acted on.  The annuities reforms and where they point to are a real achievement.

22 comments for: Reasons to be Tory 12) An end to buying annuities on compulsion

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