Chancellor of the Exchequer George Osborne’s budget announcement Wednesday included further reforms to the U.K. retirement market, with changes to tax rules and the launch of a consultation into building a secondary annuities market.
In what was the final budget announcement of this Parliament, taking place two months before the next general election in the U.K., Mr. Osborne confirmed the abolition of a “punitive” 55% tax rate on the withdrawal of an annuity, to a “marginal income tax rate.”
“This budget takes further action to support savers and pensioners,” Mr. Osborne said. Building on the 2014 budget, which announced the end of a requirement for defined contribution plan savers to purchase an annuity, he announced measures for people already receiving income from an annuity.
Starting in April 2016, those people will be able to sell their annuity income to a third party in exchange for a lump sum or an alternative retirement product. “Five million pensioners will have access to their annuities. (We are) changing the law to make that possible.” Mr. Osborne said this will lead to “freedom” for those with an existing annuity.
In line with these changes, the government announced a consultation on how to create a secondary market in annuities.
Mr. Osborne also announced that the government will increase the number of long-dated gilts it sells, and that the lifetime allowance — the total retirement savings you can have at retirement without incurring a tax charge — would be reduced to £1 million ($1.5 million) from £1.25 million. That, he said, produce £600 million a year in additional revenue and will affect “fewer than 4% of pension savers approaching retirement.” To protect the lifetime allowance from the effects of inflation, the limit will be indexed to inflation starting in 2018.
The chancellor also commented on the biggest change since his last update in December — the fall in oil prices. While it has provided a boost to consumers, he said it “has not yet offset the rising geopolitical risk it causes. (Further), a disorderly Greek exit from the euro remains the greatest threat to the euro’s economic stability, and it would be a serious mistake to underestimate the impact (that would have) on the U.K.,” Mr. Osborne said.