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Budget 2014: George Osborne defends pensions overhaul Budget 2014: Trust pensioners not to blow savings, says Osborne
(35 minutes later)
Chancellor George Osborne has defended changes to pensions in the Budget, saying people "are capable of making decisions" over their future finances. Chancellor George Osborne has dismissed fears newly retired people could "blow" their pension pot under reforms introduced in Wednesday Budget.
From 2015, pensioners will have the freedom to cash in as much or as little of their pension pot as they want, removing the need to buy an annuity. Mr Osborne said pensioners were "responsible people who are capable of making decisions about their future".
In response, firms which sell such policies saw their share prices tumble. 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.
The insurance industry said the reforms presented a "significant challenge" and it was "crucial" to get them right. The move wiped £5bn off the value of firms involved in the pension industry.
Mr Osborne said the changes were part of the "most far-reaching reforms" to the taxation of pensions for 90 years. 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.
"People who have saved through their lives, saved for a pension, these are responsible people who are capable of making decisions - with good advice - about their future," he told the BBC. 'Trusted'
"The truth about annuities is that, for many people, they will want an annuity, but for many other people annuities have not been good value, they've not produced the kind of incomes people hoped." Mr Osborne dismissed concerns that retired people will spend all their pension at once and end up relying on the state.
'Patronising' advert "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.
"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 is to make a Commons statement on the changes at 12:15 GMT.
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'
But he said scrapping it 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.
"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 Tory 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". Mr Osborne said the controversy had been "whipped up by the Labour Party who didn't have anything else to say about the economy". 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 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.
In his fifth Budget - 15 months away from the next general election - the chancellor sought to help pensioners and savers penalised by low interest rates.In his fifth Budget - 15 months away from the next general election - the chancellor sought to help pensioners and savers penalised by low interest rates.
He also announced:He also announced:
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.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.
It is expected that anyone over the age of 55 who belongs to a defined contribution pension scheme will be able to take out their savings as a lump sum to spend or invest as they like.It is expected that anyone over the age of 55 who belongs to a defined contribution pension scheme will be able to take out their savings as a lump sum to spend or invest as they like.
While people are not obliged to buy an annuity at the moment, there are hefty financial penalties for not doing so and an estimated 420,000 policies are sold every year.While people are not obliged to buy an annuity at the moment, there are hefty financial penalties for not doing so and an estimated 420,000 policies are sold every year.
'Right choices'
But announcing plans to reduce the amount of tax paid on pension "draw-downs", Mr Osborne said people should be able to decide what to do with their income in retirement.But announcing plans to reduce the amount of tax paid on pension "draw-downs", Mr Osborne said people should be able to decide what to do with their income in retirement.
"The tax rules around these pensions are a manifestation of a patronising view that pensioners can't be trusted with their own pension pots," he said. "I reject that."
Speaking on the BBC's Newsnight programme, Lib Dem Mr Alexander said people should be allowed to make "the right choices for themselves".
Asked whether people would simply spend the money in one go on a holiday, he said this was "possible but unlikely" and the changes would make the annuities market more competitive.
In the wake of Mr Osborne's announcement, shares in Legal and General fell 8% and Aviva dropped 5% amid City concerns about the impact on their business of the changes.
The National Association of Pensions Funds said the move - which is expected to boost the Treasury's tax receipts in the short term - would place a "great burden" on many people who did not feel confident about choosing the right option for them.
The Association of British Insurers said it was right for people to be offered a range of options on retirement including the prospect of a "guaranteed lifetime income" provided by an annuity.
"These changes represent a significant challenge for everyone involved in helping people secure their retirement income," its director general Otto Thoresen said. "It is crucial to get them right."
'Picking up tab'
While supporting changes to annuities, shadow chancellor Ed Balls said ministers needed to consider the implications of their proposals.
"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?"
During his speech, Mr Osborne also unveiled plans to support 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".
But Labour said most people had seen their disposable income fall since 2010, describing it as a "worse-off Budget from an out-of-touch chancellor".
How will the Budget affect you? Email us at haveyoursay@bbc.co.uk adding 'Budget' in the subject heading and including your contact details.How will the Budget affect you? Email us at haveyoursay@bbc.co.uk adding 'Budget' in the subject heading and including your contact details.