Chancellor George Osborne will today confirm plans to create a new pension withdrawal option that allows savers to use their fund in a similar way to a bank account, according to reports.
In August, the Treasury set out proposals to allow pension schemes to pay out lump sums from members’ pots without the saver having to move into drawdown or buy an annuity.
Under the new option, called Uncrystallised Funds Pension Lump Sums, savers will be able to make multiple withdrawals from their fund and receive up to 25 per cent tax-free. These withdrawals would not force the member to allocate the remainder of their savings to a drawdown vehicle or an annuity within six months of taking their tax-free lump sum.
According to several reports, Osborne will today say people will be able to take as much or as little of their pension as a lump sum from April next year.
He will say: “People who have worked and saved all their lives will be able to access as much or as little of their defined contribution pension as they want from next year and pass on their hard-earned pensions to their families tax free.
“For some people an annuity will be the right choice whereas others might want to take their whole tax-free lump sum and convert the rest to drawdown. We’ve extended the choices even further by offering people the option of taking a number of smaller lump sums, instead of one single big lump sum.”
However, it remains unclear if pension schemes will be ready to offer the new option from April 2015.
Hargreaves Lansdown head of pensions research Tom McPhail says: “This just confirms that people will be able to use UFPLS to make income withdrawals.
“But I think broadly the Chancellor’s reform agenda around pensions is reckless and deeply political. This is not about reform to make the system better and that is worrying.
“At the moment we have no regulatory controls around how this will work and ultimately some people will suffer detriment by misusing the new freedoms.
“Another problem is a lot of schemes simply won’t be ready to offer the direct income withdrawals Osborne has promised from April next year. It is going to be chaos next April and it will not be good for the reputation of the pensions industry.”