The 2014 Budget announced fundamental changes to private pensions in the UK, removing restrictions on how individuals could withdraw funds from their defined contribution (DC) pensions. Under the current rules, many people with a DC pension are forced to use their accumulated pension to buy an annuity by the age of 75, or else face a 55% tax rate on the withdrawn income. From April 2015, such restrictions are now set to be removed, increasing flexibility for some individuals with DC pensions.
This Briefing Note summarises the characteristics of those who are most likely to be directly affected by these announced changes to the pensions system. We restrict our attention to those who might be affected in the immediate future, using survey data from the English Longitudinal Study of Ageing (ELSA).The survey’s rich mix of information on pensions, other types of wealth, demographics, other socio-economic characteristics and individuals’ expectations allows us to estimate the proportion of people affected by the increase in flexibility. It also allows us to investigate the characteristics of those individuals most likely to be affected by the reforms, which should inform anyone trying to predict the short-term response to the policy changes.
This Briefing Note accompanies the Observation Budget 2014 pension reforms: increased flexibility, but for whom?.
This briefing note was updated on 4 June 2014 with minor changes to tables 3.2 and 3.3.