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Pension reforms encouraging saving


Pension reforms introduced by George Osborne in the 2014 Budget speech have already started to have a positive effect, according to a report by pension expert LCP.

LCP said the future of the pensions market looks positive. The extra flexibility that is expected to be introduced as part of the pension reform makes the product more attractive to savers.

Until recently, the majority of people in a ‘defined contribution’ pension scheme had to trade it in for an annuity, which is a pre-set, guaranteed income for life. However, it was argued that many annuities were poor value for money, so it was unfair for a person to be forced to buy one with their savings.

As of 6th April 2015, people will have the opportunity to use their pension money in any way they like, once they are 55 years old. For example, a person could withdraw their entire pension savings (25% tax-free, and the rest taxed at the marginal rate) and use it to invest into a property.


However, the report did warn that there are still issues that needed to be resolved, such as the huge deficit in final-salary pension schemes, although this does appear to be reducing. For example, among the final salary schemes operating under FTSE 100 companies, the combined deficit stands at £37bn, which is less than last year when it was £43bn.

Despite these warnings, the outlook still remains largely positive, as the report said that the changes mean there is “an end in sight” for some of the biggest pension issues facing companies.

Bob Scott, author of the LCP report on pensions said: "This has been a remarkable year for pensions. Even before the Budget, companies faced a period of upheaval as they came to terms with legislative changes introduced in the past four years."

He continued to say: "Companies have made huge changes to their pension schemes in recent years. All the signs from our latest report point to the likelihood that we will see plenty more changes over the coming years as well."

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