UK overhauls employee pension schemes
London, July 21, 2014
Britain published new rules for private pensions on Monday which give retirees greater freedom to spend their savings as they like, fleshing out reforms announced earlier this year that shook the share value of British insurers.
Finance minister George Osborne caught Britain's pensions industry by surprise in March when he scrapped a rule forcing people to buy an annuity, a financial product which converts a retiree's pension pot into a guaranteed retirement income.
Osborne is keen to allow people to tap into the cash they set aside during their working life by reducing tax penalties imposed on those who withdraw their savings in a lump sum.
He wants that change to drive innovation in the 12 billion pound ($21 billion) per year British annuity market.
To accompany the reforms, he also wants to make free independent financial guidance available.
On Monday, the government confirmed its intention to go ahead with such plans, seen as the biggest reform of pensions in a generation, and added details to its proposals following a consultation with industry, employers and consumer groups.
"It's right to support hard working people that have taken the long-term decision to save for their future and I'm pleased that the responses we had to our proposals on making pensions more flexible have been overwhelmingly positive," Osborne said.
The finance ministry estimated the changes could affect 18 million people, but said it expected the impact on financial markets would be modest.
"The government believes that the overall impact ... is likely to be limited," it said. "It is expected that there will still be a strong continuing demand for high-quality fixed-income assets, including government and corporate bonds."
Osborne rejected the idea that the changes would allow pensioners to fritter away their savings early in their retirement and later suffer an impoverished old age. - Reuters