Interim measures announced in the March Budget have given 400,000 people more freedom over their pension savings and will benefit 18m people in total, the government has said.
In its 38-page response to the consultation document, the Treasury decried the old system, whereby only those with a pension pot worth over £310,000 (or with a total pension wealth below £18,000) could access their pension savings flexibly.
Following industry feedback to its consultation, the government said it expected to implement the pension reforms announced earlier this year, which included the roll out of an independent industry-funded Guidance Service to help guide retirees.
In the document, issued by the Treasury, it claimed approximately 18m people would benefit from the reforms, which include the removal of the compulsion to purchase an annuity before the age of 75.
The Treasury confirmed that from April 2015, the previous tax charge of 55 per cent on pension withdrawals would no longer apply, with investors charged the normal rate of income tax they paid on their salary.
It also said the lump sum 25 per cent tax-free cash benefit would remain in place. Those in a private sector or in a funded public sector scheme would still be able to transfer from a defined benefit pension scheme to a defined contribution one if they wanted to.
The Guidance Service is to be made available on several different channels – online, over the phone and face to face – and individuals will be able to choose the channel, or a mix of channels, they find convenient.
Other changes include, a permissive statutory override that will be introduced to allow schemes to follow the tax rules rather than their own scheme rules if they wish to do so.
Graham Vidler, director of external affairs for the National Association of Pension Funds, said: “Allowing the transfer from DB to DC schemes is in keeping with the ethos of ‘freedom and choice’. However, DB pensions are often highly valuable and anyone considering a transfer should think very carefully before making an irreversible decision.
“So the requirement for savers to take independent financial guidance before making a transfer from a DB scheme is an important safeguard.”
However, Nigel Green, chief executive of deVere Group said he feared the Guidance Service could end up being ‘dangerously generic’. He said: “Originally, it was heralded as always being face-to-face guidance. It now becomes apparent this advice could be online or over the phone. But it is not solely the delivery; it is the advice itself that is my main concern. It will be dangerously generic but to do it any other way would be prohibitively costly for government.”