Does David Cameron understand his own pension reforms?


Does David Cameron understand his own pension reformsPensions are complex at the best of times and you could be forgiven for getting confused from time to time. Indeed, one of the reasons many people are ‘turned-off’ by pensions is due to their complexity.

But, you would expect the Prime Minister to understand his own pension reforms, especially when he is so keen to promote them.

However, his guest blog on Money Saving Expert, published earlier this week, contains clear mistakes, which highlight the importance of getting the detail right when it comes to pensions.

You can read the full blog by clicking here. In the meantime, what mistakes did Mr Cameron make?

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“Scrapping compulsory Annuities. This gives you complete control over your own money, so you can spend your private pension savings as you wish, and are no longer forced to buy an Annuity.”

He’s right, no one is forced to buy an Annuity, and haven’t been since 2006.

The raft of changes introduced by the Government, which we are generally in favour of, will give you far more flexibility when you retire.

But it’s wrong to say that you will no longer be forced to buy an Annuity, that rule was changed eight years ago.

“Passing on your pension. When you pass away, you will be able to pass your private pension onto your loved ones tax-free. This means that no-one will ever again have to pay that completely unfair 55% tax on the money they have worked so hard to save.”

This is partially true, but isn’t the whole story.

If you die before the age of 75 you will indeed be able to pass on your pension tax-free to your “loved ones”. But in reality most people die after the age of 75, which isn’t tax-free, under the existing or older rules.

Currently, if you die after the age of 75, any lump sums paid to your beneficiaries will be taxed at a rate of 55%. Between 6th April 2015 and 5th April 2016 this will be reduced to a 45% tax charge; thereafter tax at the beneficiaries marginal rate will be paid. If a pension income is taken rather than a lump sum, the beneficiaries will simply pay tax at their marginal rate.

As you can see, Mr Cameron’s statement is only partially true; die before 75 and he’s right, die after 75 (as most of us will) and he’s wrong.

State Pension reforms

His blog also mentioned the triple-lock on the State Pension, which according to Mr Cameron means the State Pension has risen by £950 since he became Prime Minister.

Of course we welcome this, but the other factual inaccuracies in the article highlight the importance of getting the detail right when it comes to pensions.

Are you confused about the pension reforms?

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