More than 400,000 people are expected to benefit from the radical changes announced to the drawdown regime in the Budget and which come into force today, the Financial Times reports.
One of the biggest changes is an increase to the overall size of pension savings that can be taken as a lump sum, from £18,000 to £30,000. In addition, the size of each pot that be taken as cash has risen from £2,000 to £10,000.
The minimum income requirement for unlimited ‘flexible’ drawdown has also dropped from £20,000 to £12,000, and the income limit on ‘capped’ drawdown has risen to 150 per cent of GAD rates.
Tom McPhail, head of pensions research at Hargreaves Lansdown, told the FT that while the firm has had 110,000 “customer contacts” over the past week with people wanting information on the changes, “very few” have so far cancelled their annuity contracts.
The FT quotes Barnett Waddingham’s Malcolm McLean stating that the reforms will open the door for “tens of thousands” more people to take their funds as cash, as currently two-thirds or all annuities are sold for sums of £30,000 or less.
Mr Mclean added that he expects many people will want to take advantage of the new flexibility.
Although the changes in the annuitisation rules will provide extra choice for 400,000 people this year, the impact on the wider economy is expected to be minimal.
The Office for Budget Responsibility estimated that 30 per cent of people who can benefit would choose to exercise them on the basis of their other debts and likely preference for immediate access to savings.
Proposals to be consulted on over the coming year could mean that all drawdown limits are removed in a second phase to the changes that will effectively allow all savers to take all of their pension as cash, subject only to marginal tax rates.
BofA agrees $9.5bn settlement
The Bank of America has agreed to a $9.5bn (£5.7bn) settlement with US housing regulator Federal Housing Finance Agency, marking the settlement as the largest payout to a single regulator over misleading mortgage sale practices in the run-up to the financial crisis, the Financial Times reports.
JPMorgan Chase paid $5bn (£3bn) to the FHFA, and government mortgage agencies Fannie Mae and Freddie Mac last year as part of its broader $13bn (£7.8bn) settlement with the Department of Justice and state attorneys-general.
BofA is also in settlement talks with the DoJ and state authorities in which it could pay at least $7.5bn to resolve faulty mortgage sales practices, which would bring the bank’s total payout to more than $17bn.
BofA’s former chief executive has also agreed in a separate case to a three-year ban from serving as an officer or director of a public company.
Taxpayer stake in Lloyds cut by 7%
On Tuesday the UK government sold £4.1bn of shares in Lloyds Bank, which cuts the taxpayer’s stake in the bank to 25 per cent from 32.7 per cent, The Guardian reports.
Chancellor George Osborne said the sale was “good value for the taxpayer and that the money would be used to reduce the national debt”.
Britain’s pace of recovery slows
The Guardian reports Britain’s pace of recovery slowed to an eight-month low in March, according to the CBI.
The CBI’s latest data revealed weaker growth in all sectors but it was more pronounced amongst the services and retail industries.
Of more than 600 firms surveyed for the CBI’s growth indicator, a balance of +19 per cent said output was up, down from +32 per cent in February and the lowest level since July last year.
Fed rejects capital plans of five large banks
The Federal Reserve rejected the capital plans of five large banks including Citigroup as part of its annual stress test, clearing Bank of America and Goldman Sachs “only after they agreed to lower buyback and dividend proposals”, the Financial Times reports.
The test measures the strength of the US financial system in a crisis scenario but it also governs the ability of banks to pay dividends and share buybacks.
According to the FT, Citi had planned a $6.4bn (£3.9bn) buyback programme by the first quarter of 2015 and intended to increase its quarterly common stock dividend from 1 cent to 5 cents.
The Fed cited “inadequate” improvement in areas flagged as needed more attention and also found fault with Citi’s ability to estimate revenue and loss projections under a stress scenario.
Lord Turner warns on property obsession
A former Financial Services Authority boss has warned that Britain’s property obsession has left the country at risk of another major financial shock, according to the Telegraph.
Lord Adair Turner warned mortgage and commercial property lending in advanced economies had played a “central role” in almost all financial crises and post-crisis recessions.
While he admitted property focus was an inevitable part of a modern economy, he warned it also increased the risk of another boom and bust.
L&G expects annuities market to drop by £9bn
Legal and General’s boss expects the individual annuity market to shrink from the £11.9bn it is currently, to just £2.8bn post 2015, once the restrictions announced in the Budget are lifted
Nigel Wilson, chief executive, said L&G expects more people to choose to take responsibility for their retirement savings rather than locking into a lifetime contract.
