Budget 2014: George Osborne unveils major pensions and savings shake-up

Chancellor announces pensioner 'bond' paying interest of up to four per cent a year

Whitehall Editor

George Osborne has announced the biggest shake-up to pensions in nearly a century as he unveiled a Budget which he claimed would promote savings and investment across Britain.

Under the Chancellor's plans around 13 million people in defined contribution pension schemes will no longer be forced to buy annuities - that give them a guaranteed income when they retire.

Instead they will be allowed to take as much or as little of their pension pots as they wish at any time to invest or spend themselves and the taxation on such withdrawals will be greatly reduced.

In addition he announced the creation of a new Government pensioner 'bond' paying interest of up to four per cent a year and run by National Savings and Investment.

For savers in general he announced the merging of cash and share ISAs. In the new combined ISAs savers will be able to save up to £15,000 a year tax free.

"This is the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921," Mr Osborne told the House of Commons.

"The message from this Budget is this: You've earned it, you've saved it. This government is on your side."

Among other measures announced in the Budget were:

* Changes to the way in which environmental charges are placed on energy bills which Mr Osborne claimed would save consumers £15 a year over and above the £50 annual saving from earlier deal with energy companies to cut green levies.

* Extra £140m for repairs and maintenance to flood defences. Extra £200m for potholes

* Tobacco duty up 2% above inflation. Fuel duty rise planned for September halted. Cider duty frozen. Beer duty cut 1p a pint. Taxes on whisky and other spirits frozen. Bingo duty halved.* Personal tax allowance to be raised to £10,500 next year. Threshold for 40p tax up from £41,450 to £41,865 next month and to £42,285 next year.

* New pound coin to be introduced in 2017  to tackle counterfeits, but vending machines, trolleys, meters will be affected.

* 1.5m more jobs over next five years and earnings to grow faster than inflation

* Inheritance tax waived for emergency services personnel who 'give their lives protecting us'

* Cash and shares Isas merged from 1 July with new tax-free savings limit of £15,000.

* GDP growth forecast to be 2.7% this year, then 2.3%, 2.6%, 2.6% and 2.5% in following years - making UK economy £16 billion bigger than predicted.

* Deficit revised down to 6.6% this year, and forecast to fall in following years before going into surplus of 0.2% in 2018/19

On the wider economy Mr Osborne said that the Office for Budget Responsibility (OBR) was now predicting that the UK economy would grow by 2.7 per cent this year - up from its previous estimate of 2.4 per cent.

But he warned that cuts would continue and announced a cap of £119 billion on welfare bills including housing benefit and tax credits. Only the State Pension and the cyclical unemployment benefits would be excluded.

The cap will rise, but only in line with forecast inflation, to £127 billion in 2018-19.

The Chancellor told MPs: "Britain should always be proud of having a welfare system that helps those most in need. But never again should we allow its costs to spiral out of control and its incentives to become so distorted that it pays not to work."

"If you're a maker, a doer or a saver: this Budget is for you. It is all part of a long-term economic plan - a plan that is delivering security for the people of this country."

But it was the changes to pensions - which although complicated - are likely to have the greatest long term impact.

The changes effectively mean that pensioners are finally to be trusted with their own money. In the past, by law, individuals not in a final salary pension had to buy what was known as an annuity when they retired.

This financial product guaranteed them an annual income for the rest of their lives - but were often poor value for money and allowed them no flexibility to invest their money individually.

In future there will be no compulsion to buy an annuity and withdrawals out of pension funds over the 25 per cent tax free cash rate will be taxed at normal marginal rate, not 55 per cent.

The changes to limits take effect from March 27 and people will be offered free and impartial advice on how best to invest the pension pot they have built up.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooksA celebration of British elections
  • Get to the point
2015 General Election

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: C# Developer - Kent - £43,000

£35000 - £43000 per annum + Benefits: Ashdown Group: C# and .Net Developer - n...

Guru Careers: Digital Marketing Exec / Online Marketing Executive

£35 - 40k: Guru Careers: Our client has a new role for a Digital Marketing Exe...

Ashdown Group: Marketing Manager (B2B) - Romford - £40,000 + car

£35000 - £40000 per annum + car and benefits: Ashdown Group: Marketing Manager...

Ashdown Group: Helpdesk Analyst - Devon - £20,000

£18000 - £20000 per annum: Ashdown Group: Helpdesk Analyst - Devon - £20,000 ...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'