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Trust pensioners not to blow savings, says Osborne Minister fuels pension debate with Lamborghini comment
(35 minutes later)
Chancellor George Osborne has dismissed fears newly retired people could "blow" their pension pot under reforms introduced in Wednesday's Budget. The government has defended a minister who said pensioners should be free to spend their savings on a Lamborghini, following a rule change in the Budget.
Mr Osborne said pensioners were "responsible people who are capable of making decisions about their future". From 2015, people reaching retirement age will be able to use pension pots however they want, rather than having to buy a guaranteed annual income.
From 2015, people reaching retirement age will be able to spend the money however they want, rather than having to use it to buy a guaranteed income. Pensions minister Steve Webb said it was people's "choice" whether to buy Italian Lamborghini sports cars.
The move wiped £5bn off the value of firms involved in the pension industry. No 10 said people were free to spend money in their own way.
It also raised concerns about a fresh buy-to-let boom if pension pots were used to buy property as a retirement income, or people deciding to invest their money in higher risk - and higher interest - things such as the stock market. Chancellor George Osborne has dismissed fears newly retired people could "blow" their pension pot.
'Coherent reform' Mr Webb, a Liberal Democrat, told the BBC's Norman Smith he was "relaxed" about how people spent their money.
Personal finance experts said the proposed changes to annuities - bonds which provide a fixed income for the rest of the owner's life - will significantly change the way people fund their retirement. He said: "If people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice."
It is expected that anyone over the age of 55 who belongs to a private pension scheme (as opposed to a final salary scheme) will be able to take out their savings as a lump sum to spend or invest as they like. The Lamborghini Huracan, unveiled earlier this month at the International Motor Show in Geneva, is to be sold at about £165,000.
Mr Osborne dismissed concerns that retired people will spend all their pension at once and end up relying on the state. A Downing Street spokesman backed Mr Webb, saying it was not up to the government to give advice on how people chose to manage their savings.
He added that under the rule changes pensioners were guaranteed independent advice before making any decision about their pension provision.
Personal finance experts said the proposed changes to annuities - bonds which provide a fixed income for the rest of the owner's life - would significantly change the way people fund their retirement.
It is expected that anyone over the age of 55 who belongs to a private pension scheme (as opposed to a final-salary scheme) will be able to take out their savings as a lump sum to spend or invest as they wish.
Mr Osborne dismissed concerns that retired people would spend all their pension at once and end up relying on the state.
"It's all part of a coherent pension reform," he told BBC Radio 4's Today programme."It's all part of a coherent pension reform," he told BBC Radio 4's Today programme.
"So we have a more generous basic state pension, less means-testing and that enables us to get rid of a quite old fashioned set of government requirements, put in place many decades ago, that people had to take out annuities."So we have a more generous basic state pension, less means-testing and that enables us to get rid of a quite old fashioned set of government requirements, put in place many decades ago, that people had to take out annuities.
"While annuities might be right for many people, they are not right for many, and returns from annuities have been much lower over the last 15 years or so."While annuities might be right for many people, they are not right for many, and returns from annuities have been much lower over the last 15 years or so.
"In the end, people who have saved through their lives, who have earned that money, I think should be trusted to make their own decisions, with good advice, about what to do with that money in retirement."
Lib Dem pensions minister Steve Webb - the chief architect of the reforms - said there would be nothing to stop people "blowing the whole lot in one go".
But, he added, they would risk being taxed at a higher rate, and many would still choose to buy annuities once they had received the independent financial advice to which they will be entitled.
The National Association of Pension Funds said some people who lived longer than expected would be left in poverty - but Mr Webb said a new, "single tier" state pension due to come into force in 2016 would prevent them being a burden on the state.
He told BBC News: "Essentially what we are saying to people is you can take the choice to spend your money early and if you want to just live on the basic state pension - it won't be a king's ransom, it will be a very basic standard of living, that then becomes your choice.
"But you won't be coming to us to claim benefits in most cases."
The Institute for Fiscal Studies said the new pension rules could mean more money for the Treasury if people opted to extract taxable lump sums from their pension pots.The Institute for Fiscal Studies said the new pension rules could mean more money for the Treasury if people opted to extract taxable lump sums from their pension pots.
But, the think tank added, it was difficult to predict how people would behave and the government could be left short of money for tax cuts announced on Wednesday.But, the think tank added, it was difficult to predict how people would behave and the government could be left short of money for tax cuts announced on Wednesday.
Labour's shadow chancellor Ed Balls said he supported the "principle" of more flexibility over pensions, because the annuities market is "not working" and "people are being ripped off".Labour's shadow chancellor Ed Balls said he supported the "principle" of more flexibility over pensions, because the annuities market is "not working" and "people are being ripped off".
'Beer and bingo''Beer and bingo'
But he said scrapping the requirement to take out an annuity altogether was a potentially "reckless and irresponsible" move, which could "leave people running out of money".But he said scrapping the requirement to take out an annuity altogether was a potentially "reckless and irresponsible" move, which could "leave people running out of money".
"Will people with ordinary-sized pension pots be able and encouraged to withdraw all of their pension savings from their pension pot and either try and invest it themselves or spend it?" he asked."Will people with ordinary-sized pension pots be able and encouraged to withdraw all of their pension savings from their pension pot and either try and invest it themselves or spend it?" he asked.
"And if they do, what happens when the money runs out? Who then picks up the tab?""And if they do, what happens when the money runs out? Who then picks up the tab?"
Pensions changes were among a series of measures announced in a Budget that Mr Osborne said would reward the "makers, doers and savers".Pensions changes were among a series of measures announced in a Budget that Mr Osborne said would reward the "makers, doers and savers".
However, hours after he outlined his plans, the Conservatives faced a backlash over an advert highlighting changes to beer and bingo taxes.However, hours after he outlined his plans, the Conservatives faced a backlash over an advert highlighting changes to beer and bingo taxes.
The online advert, tweeted by Tory chairman Grant Shapps, said the cuts would "help hardworking people do more of the things they enjoy". The online advert, tweeted by Conservative chairman Grant Shapps, said the cuts would "help hardworking people do more of the things they enjoy".
It was described as "patronising" by Mr Osborne's deputy, Chief Secretary to the Treasury Danny Alexander, who said he initially thought it was a "spoof".It was described as "patronising" by Mr Osborne's deputy, Chief Secretary to the Treasury Danny Alexander, who said he initially thought it was a "spoof".
Labour said it was "ill-conceived" and "condescending".Labour said it was "ill-conceived" and "condescending".
Ed Balls said: "The idea that working people can be fobbed off and patronised because 'they' like things like bingo and beer, it's the Conservative Party of the past. It shows how out of touch they are." But Mr Osborne said the controversy had been "whipped up by the Labour Party who didn't have anything else to say about the economy".
But George Osborne said the controversy had been "whipped up by the Labour Party who didn't have anything else to say about the economy".
Conservative sources told BBC News they were "completely relaxed" about the tweet and "astonished" by the row, adding it would not be "pulled" because it was a "one-off" message and not part of any campaign.Conservative sources told BBC News they were "completely relaxed" about the tweet and "astonished" by the row, adding it would not be "pulled" because it was a "one-off" message and not part of any campaign.
In his fifth Budget - 15 months away from the next general election - the chancellor set out measures aimed at supporting the economic recovery, including tax breaks to boost productivity, exports and manufacturing.
He said Britain was growing at a faster rate than any other advanced economy - revising growth forecasts up to 2.7% in 2014 - but he warned the job of recovery was "far from done".
Other measures announced in the Budget include: