As well as helping young people to get a job and get on the housing ladder, we also want to ensure our elderly enjoy dignity and security in retirement.
That’s why we’ve protected pensioner benefits like the Winter Fuel Allowance and the Freedom Pass – and why we’ve ensured that the basic state pension increases in line with whichever is higher of price inflation, wage inflation or 2.5% so there is no repeat of the 75p a week increase pensioners got under the last Government.
But as Conservatives we believe that those who do the right thing and save for their retirement shouldn’t be penalised for doing so. But as the Prime Minister explained that is exactly what was happening under the last Government:
“There were three great wrongs.
“Wrong number one: the Pension Credit that was basically a means test – the more you saved, the less you got.
“Wrong number two: compulsory annuities that meant you couldn’t spend your own money as you wished.
“Wrong number three: when people passed away, the pension they had saved was taxed at 55 per cent before it went to their family.
“Three wrongs – and we are putting them right.
“The means test – it’s going. In its place: a new single-tier pension of £142 a week. Every penny you have saved during your working life, you will keep.
“Those compulsory annuities – scrapped, giving you complete control over your private pension.
“As for that 55 per cent tax on your pension? You heard it this week: we’ll cut it to zero per cent.”
In future, when the deceased is 75 or over any beneficiary will only have to pay their marginal income tax rate - normally 20 per cent - when they draw down the pension. Beneficiaries will be able to access the pension funds flexibly, at any age - there will be no restriction on how much of the fund can be withdrawn at any one time.
And if an individual dies before the age of 75 they will be able to pass on their pension pot completely tax-free. The beneficiary will not pay any tax when they inherit the pension, nor will they have to pay any tax on the income they draw down.
This tax cut will apply to all payments made after 6th April 2015. The beneficiaries of anyone who dies before then should still be able to benefit so long a payment is delayed until after that point.