Chancellor accused of destroying pension policy

24 Mar 14
Chancellor George Osborne’s pension reforms will bring in a short-term boost for the public finances but have been criticised for a lack of consultation and long-term modelling of their impact.

By Judith Ugwumadu | 25 March 2014

Chancellor George Osborne’s pension reforms will bring in a short-term boost for the public finances but have been criticised for a lack of consultation and long-term modelling of their impact.

In the centrepiece announcement of his Budget statement, Osborne unexpectedly reduced tax restrictions on defined contribution pension pots. This will make it easier and cheaper for people to make cash drawdowns, rather than relying on often low-paying annuities.

The chancellor said he was putting pensioners in charge of their own finances and bringing the tax treatment of defined contribution pensions ‘in line with the modern world’. The changes will take effect from April 2015 and are expected to bring in an extra £1.2bn in tax receipts in 2018/19, according to figures in the Red Book.

Ed Wilson, pensions director at PricewaterhouseCoopers, told Public Finance there would be a beneficial short-term impact for the public finances. ‘The government assumes that people would be more likely take more cash at retirement or near retirement rather than spreading it over an entire life of retirement.

‘[Drawdown] is going to be taxed at marginal rates. The impact will accelerate payments and will push people to a higher tax band if they take more money earlier. There is an immediate cash flow benefit, creating a release for public finances.’

But the unexpected move and the manner of its introduction was slammed by the Strategic Society Centre’s director, James Lloyd.

‘For the Treasury to announce this without consultation and debate does not represent responsible, long-term policymaking, which is what pensions policy desperately needs,’ he told PF.

‘Stakeholders have spent the last decade building consensus around the Turner commission report and seeing it through… [but] without any warning, without any consultation, the chancellor has torn away the consensual basis of UK private pension policy. That is not responsible.

‘I think in years to come he will be known as the chancellor who destroyed

UK pension policy.’

National Association of Pension Funds chief executive Joanne Segars said it was ‘concerning’ that there had been little robust modelling to demonstrate that the government had properly understood the risks of the changes.

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