Savings & retirement: making better financial provision
Adequate financial provision is becoming ever more important in the context of advances in medicine, increased life expectancy and the reality of longer working lives. In turn, it is essential that Government gives people the incentive and flexibility to plan for their retirement effectively.
In its June 2010 Budget, the Government set out its blue-print for pensions saving. This included reinstating the link between the basic state pension and earnings – to address the problem with state pensions failing to keep up with the cost of living in the UK (as earnings often rise faster than inflation). The Government is committed to ensuring that this is not the case going forward, and that the pensions system reflects and supports the retirement provision consumers deserve.
Linking pensions and earnings
As a result, from April 2011, the state pension will rise in line with average UK earnings. To protect consumers, the Chancellor has announced a ‘triple lock’ system to ensure that pension provision is made as attractive as possible, irrespective of the economic climate. The state pension will rise by whichever of the following is highest:
- The rise in average UK earnings.
- The rise in inflation (as measured by the Consumer Price Index).
- A standard rise of 2.5 per cent.
Pensions tax relief
To ensure that pensions tax relief remains fair and affordable, the Government confirmed in its June 2010 Budget that it would proceed to reduce the cost of pensions tax relief by about £4bn per annum. In October 2010, the Government announced that the annual allowance for tax privileged pension saving will be £50,000 from April 2011, and that the lifetime allowance will be £1.5million from April 2012.
The Government is grateful to all those who have provided views and participated in discussions, and will continue to work closely with interested parties to ensure that reform is introduced as smoothly as possible. This includes a consultation on options to meet high annual allowance charges from pension benefits, as launched on 30 November 2010.
Flexibility in retirement income
The June Budget also announced plans to remove the effective requirement to purchase an annuity by the age of 75 with effect from April 2011, which fixes a pensioner’s income over their lifetime.
Giving greater flexibility in retirement income will allow consumers more continued choice and freedom in their financial affairs. This also complements the work that the Government is doing around National Financial Advice and the establishment of a framework for simple financial products - all designed to give consumers greater understanding to take control of their personal finances.
The following consultations, and responses, are available to download as follows:
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