EY Comment: The “great granny giveaway” – DC schemes, pensions bonds and a tax free investment band

19 March 2014

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Chris Sanger, EY head of tax policy comments:

"After being wrong-footed with the “granny tax in the 2012 Budget, George Osborne’s budget includes a “great granny giveaway”.
"Perhaps the most significant announcement for those on the brink of retirement is the abolition of the 55% tax rate drawdowns from defined contributions schemes.  Its replacement - a tax at the pensioner’s marginal rate at the time of withdrawal - will completely alter the calculation for those deciding whether it is worthwhile saving for their pension. In many cases it will make saving for a pension much more attractive.

"Those pensioners with money to invest will benefit from two further measures.  First, the introduction of a pensioners’ bond paying market rate interest will allow those over 65 to potentially access a higher rate of return. The Budget assumes an interest rate of 4% for a 3-year bond with a likely investment limit of £10,000.

"The Chancellor has also abolished the 10% savings rate replacing it with a tax free band for investment income for those with low income.  This effectively means that those with incomes under £15,000 will pay no tax on their investment income - a measure likely to be of most benefit to those in retirement with modest savings.

"With all these savings, there should be a few spare pounds to spend in the Bingo hall – and the halving of the Bingo tax to 10% must be the icing on the cake!"

For more information on the 2014 Budget, visit the EY 2014 Budget page.