George Osborne is to hand five million pensioners with existing annuities the right to cash them in from April next year as part of this week’s pre-election Budget.
With just weeks to go before the poll, the move is likely to be seen as an attempt by the Conservatives to win over wavering older voters – a key group targeted by the main parties.
Mr Osborne insisted there will be “no giveaways, no gimmicks”, in his Budget on Wednesday, but refused to say if it would be fiscally neutral, stating that he had been clear that Britain just “pay its way”.
The planned annuity reforms will give pensioners the same opportunity to access their retirement funds as Mr Osborne announced last year for people who had not already taken their pensions.
The reforms which were announced in last year’s Budget allow people to cash in all or part of their defined contribution pension when they retire, rather than buy an annuity that guarantees an income for life.
Pensioners had been required to buy annuities under the old rules.
The latest changes will give pensioners who have already retired a greater choice on how to access their savings in retirement, Mr Osborne is expected to announce on Wednesday.
Mr Osborne, speaking on BBC One’s Andrew Marr Show, dismissed claims pensioners could end up blowing their nest-eggs on Lamborghinis and holidays.
He said: “I just think that is a very patronising attitude to take towards people who have shown responsibility, saved through their lives, saved for a pension.”
He added: “It’s all part of having a long-term economic plan where we build our country on savings and investment. By changing the law we are trusting people who have worked hard and saved hard all their lives.”
Annuities have been the focus of growing controversy in recent years amid plunging rates, and fears that many people are unaware they could get a better deal by shopping around rather than sticking with their existing pension provider. Removing the restrictions on buying and selling existing annuities will allow pensioners to sell the income they receive from their policy without unwinding the original contract.
They will be free to either take the cash as a lump sum or place it into drawdown to use the proceeds more gradually.
Mr Osborne is expected to remove the tax charges of up to 70 per cent that currently hit pensioners who want to sell their annuity income to a willing buyer so they are taxed only at their marginal rate.
However, shadow chancellor Ed Balls said Mr Osborne “gives with one hand but takes away much more with the other hand”.
Mr Balls said the Tories were committed to an “ideological plan” for the biggest cuts since the Second World War.
Meanwhile, shadow energy secretary Caroline Flint defended Labour’s claims that the Conservatives would strip public spending back to 1930s levels.
Asked if the party was scaremongering, the shadow energy secretary, she said: “I think it is only right to paint the picture of what the offer from the Tories really means.”
She added: “The health service we need today and also the education that we need today, the challenges we face but also what we need to keep people healthy, is way different from what it was in the 1930s.”
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