More details of Government pension reforms were made public last week by Lib Dem Pensions Minister Steve Webb. The major change announced will be that savers are to receive free independent guidance when given access to their pension pots from next year. The advice will be paid for by a levy on regulated financial firms.
Under the current system most people bought an annuity, a pre-set income for life, from a provider when they retired. However from next April, savers will be able to use their pension money as they see fit, from the age of 55.
The Treasury carried out a consultation after the Budget in March and has now published the final rules for the changes. It said the plans were “overwhelmingly well received”, with savers backing greater freedom and choice, and the pensions and insurance industry ready to create new products better suiting individuals’ needs.
Some critics claim that the new freedoms could mean people spending large sums early in their retirement and falling back on state support later. My view is that people have the right to spend their own money as they wish and if you have worked hard, saving for retirement, you are hardly going to be irresponsible in retirement. Especially if you are getting free, impartial advice. I do not expect to see a whole raft of pensioners driving down Barlow Moor Road in Lamborghinis but I do expect them to have more control over spending their money in the future.
There was more good news for pensioners announced this month as well: pensioners would be guaranteed to earn at least an extra £790 per year by the end of the next parliament under Liberal Democrat manifesto plans. These changes mean the state pension will be worth at least £131-a-week by 2020, up from just £97.65 four years ago.
Thanks to the Liberal Democrats’ triple lock guarantee, the basic state pension has risen in each year of the last parliament by whichever is the higher of earnings, prices or 2.5%. The triple lock was a key demand from the Liberal Democrats in Coalition negotiations.
This means the state pension is £440 higher per year in 2014-15 than if it had increased in line with earnings from the start of this Parliament, and worth over £800 a year more in total.
Only the Liberal Democrats are committed to write this guarantee into law, giving pensioners more certainty that their pension will continue to rise in future and giving them more choice on how to spend their money.