In the budget speech today, the chancellor of the exchequer, George Osborne, stated that they would be changes to the pension system in the coming years. The chancellor is currently considering a green paper which has proposals for the changes in the pension system. The green paper can be found here : “https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/442160/Strengthening_the_incentive_to_save_consultation__web_.pdf”
Osborne stated the following in his speech:
“While we have taken important steps with our new single tier pension and generous new Isa, I’m open to further radical change. Pensions could be treated like Isas – you pay in from taxed income and it’s tax-free when you take it out, and in between it receives a top-up from the government.”
“This idea and others like it need careful and public consideration before we take any steps so I am today publishing a green paper that asks questions, invites views and takes care not to pre-judge the answer.”
This essentially means:
- Pensions will become more like ISAs. You pay into a pension with after tax income and you can withdraw money from your pension tax free. ( Currently you pay into a pension with before tax money and you are only taxed when you withdraw the money).
- Whilst a pension will become more like an ISA, you will still receive a pension top up from the government. (the amount of top up is still waiting to be seen, could possibly be a standard rate as opposed to the current tiered rate)
- These are big changes to the pension system and it is still unsure if the pension industry is ready for a radical change after the changes implemented in the previous budgets.