Investment special: How to come out top in the pensions revolution

Three years after The Spectator called on the Chancellor to ‘stop treating pensioners like babies’, his Budget this year gave everyone greater choice about how we enjoy our life savings. While more column inches have been expended on the outside chance that some pensioners might blow the lot on a Lamborghini, less has been said about our exciting freedom to retain control of the biggest fund most of us will ever acquire and to remain active investors after we retire.

Contrary to what some commentators seem to imagine, George Osborne did not abolish the legal compulsion to spend most of our pension savings on an annuity or guaranteed income for life last month. He began that process in his 2011 Budget, when he scrapped the requirement to use at least three quarters of the pension fund to buy a guaranteed income for life. I congratulated him then, in these pages, and urged him to go further.

Well, now he has done so. And how.

The problem with the 2011 settlement was that only the wealthiest pensioners could choose how they spent their savings because of what was known as the ‘secure income’ test. Secure income is defined as state pensions, annuities and/or final salary or defined benefit pensions. Under the 2011 rules, you had to show a secure income of £20,000 a year before you were granted complete freedom to spend the rest of your pension pot; and at present, for a 65-year-old, an annuity yielding that much secure income would cost nearly £360,000.

The idea of the secure income requirement is to prevent pensioners’ savings expiring before they do. That remains a real risk under the new rules, which pensioners should bear in mind when considering what investment strategy suits them best.