Budget ExpertPensions: Mark Stopard, head of product development, Partnership

Budget ExpertPensions: Mark Stopard, head of product development, Partnership

So this year we had Osborne’s catchphrase Budget, but not another ‘Agincourt’ for pensions.

A reduction in the lifetime allowance by £0.25m to £1m may not sound much, but when a £1m fund will only guarantee a joint life income of around £35,000 a year, this is a significant reduction needing planning strategies to be revisited with clients.

At least the chancellor attempted to draw a line by offering to index the allowance from 2018 onwards.

Article continues after advert

It is also likely to be just the start of the clampdown on pensions tax relief. Now that pensions are just another savings vehicle, and while the Coalition may have left the annual allowance unchanged this year, further reductions in pension tax reliefs are likely in the years ahead.

This year the annuity announcement was more balanced. Allowing annuities to be exchanged for a lump sum has the potential to help certain customers, improve the efficiency of the retirement market and further the demand for advice.

It will create a level playing field between annuities and drawdown by giving those annuity purchasers the comfort that if their circumstances change they can access their annuity fund for cash.

For this to be the result, there is a big challenge to work through the details to create a competitive market that protects consumers, and in which the cost of the transaction does not take too much of the return.

Many annuities will have performed very well when considered as investments with interest rates falling and longevity increasing, but clients with annuities need to be aware that this does not mean that you will be offered what you paid for the annuity, or that you will be able to cash in an annuity for a significant sum on your death bed.