April Column: Julian welcomes pension tax cut
April 11, 2014
Once the hype has died down and Parliamentary business returns to normal, or as normal as it ever is in Westminster, it is clear that this year’s Budget contained the most radical and far reaching reforms on pensions and savings in over a century. Now I appreciate that people’s interest in such matters are mixed to say the least. Younger people often glaze over, thinking it doesn’t affect them, whereas more mature readers hate politicians even mentioning the issue, fearing another sneaky Gordon Brown-style pension’s raid. Such fears are unfounded however, and many in York stand to benefit from the important changes currently underway.
Under the old system, if you wanted to take money out of your pension pot, the funds would be obliterated by a 55% tax rate. This left people with little option but to take out an annuity, despite returns halving over the past 15 years. The Chancellor has now scrapped the 55% tax rate altogether so you can take out a quarter of your pension tax free, and withdraw the rest at your normal tax rate, which for most people is around 20%. Far from welcoming a tax cut for over 13 million people, critics have proclaimed the financial doom of pensioners up and down the country, who they believe will waste no time in blowing their savings on sports cars and Caribbean cruises. This is quite frankly patronising rubbish. People who have worked all their lives and saved for their retirement are not going to fritter away their hard won gains. They should be trusted with their own money, not penalised for it. Furthermore, everyone who chooses to take advantage of the reforms will be offered free, impartial, face-to-face advice making sure they get the most out of their pension.
The Budget was good news for savers too. For decades we as a country have borrowed too much and saved too little, in stark contrast to the successful economies in the Far East. The Chancellor decided that the best way to incentivise saving is to abolish the 10% tax rate on savings. Now I don’t mean abolish the 10% tax rate like Labour did (in other words double it to 20%), I mean having no tax at all on savings income up to £5,000 a year. Over a million people will benefit, making it easier and more worthwhile for them to put aside money for a home, their family, or their retirement.
Low interest rates have been important in supporting the British economy as it recovers from the terrible financial mess we inherited from the previous government. However, such low rates have also negatively impacted on many pensioners who live off their savings. The introduction of a new pensioner bond will help millions of pensioners who will benefit from a generous return of 4% a year on their savings, far higher than what any of the banks are currently offering.
Back on the home front, regular and reliable bus services are a real lifeline not just to pensioners, but to entire communities. Working closely with the local ward councillor, I have been campaigning for the reintroduction of three of the evening buses on the Yorkshire Coastliner since they were withdrawn from the village of Stockton-on-the-Forest late last year. I am delighted to inform readers that these services will be reintroduced in May, albeit at slightly revised times. I must also praise the ward and parish councillors for Wheldrake, who have worked extremely hard to save many of the threatened No.35 buses as the service switches operators to become the No.18 at the end of the month.
How could I end my column without referring to the Lendal Bridge debacle that has unfolded this past week? I’m delighted to see the Council has u-turned on this disastrous policy and it is clearly a major victory for common sense. However, it remains to be seen what will happen to the several million pounds worth of disputed fines. I am aware that the Council is appealing the adjudicator’s judgement, but I fear this will only serve to prolong the severe embarrassment they are already experiencing. The Council should have the humility to repay the fines to bring an end to this fiasco, so York can move on.