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Budget: Big changes to rules on pensions

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Pensions saw the biggest changes in the 2014 budget. From now on people will not be forced to buy annuities as all tax restrictions on people accessing their pensions will be removed.

George Osborne announced plans to allow people more freedom to draw from their pensions savings. Anything taken early will only be taxed at the usual income tax rate, not the 55% tax that was previously applied. Osborne said he was keen to give people with pensions more responsibility with their own savings. 

Hargreaves Lansdwown head of pensions research Tom McPhail welcomed the changes. He said: "The Government is finally treating pension savers like grown-ups. These reforms will make pension saving much more attractive for everyone and get more people saving."

PwC pensions director Ed Wilson said the announcement is what savers wanted to hear. "It seems that savers’ wishes for a simpler and more flexible pensions system have been granted, at least in part," he said. "A simpler system, with far more choice at retirement, should go a long way to encourage people to save more."

The increased freedom to withdraw from savings may lead to trouble for some people, according to Deloitte tax partner Mark Groom. He told HR magazine: "While this will make pension more attractive than in the past, where some people might have been tempted to invest in other areas such as property, the chancellor is making a big assumption about people's ability to be responsible with their money. Parents may be tempted to help their children to buy houses or cars and that's not really what it's for."