Wow what a Budget…
These are without a doubt the most radical changes and they could happen as soon as 2015.
Pension savers are going to have significantly more freedom, choice and flexibility…meaning that if the changes go ahead anyone of pension age could:
- Take out 25% of their pension pot tax-free (if they have not done so already); and
- Take out as much (or as little) as they want from their remaining pot whenever they so choose.
This income would be taxed as income in the year it is taken but it signals a clear Government desire to give savers more control, and responsibility, over their pension pots in retirement. A pension wrapper will be still be the best placed to keep money invested (remember it acts as a tax ‘shelter’ on investment gains) and draw down as and when needed/desired.
It is still early days yet, but this looks like a very positive development indeed and vindicates all those who have been making sizeable pensions contributions over the past few years.
In the meantime some interim measures for existing income drawdown arrangements which we will discuss with you at your next review meeting.
And there’s more in the pipeline for pensions…
- Minimum pension age going up?
The earliest date you can take retirement benefits is set to become linked the state pension age. As the state pension age increases to 67 in 2028 the normal minimum pension age will also increase from 55 to 57. From then on it will remain 10 years below the state pension age.
This won’t impact those retiring early due to ill-health.
- Tax breaks on contributions after 75?
The over 75s may be able to continue making tax relievable pension contributions. Consultation is set to begin on removing the age 75 cap on pension funding.
A simple ISA is NISA
In a major simplification for savers, the annual subscription limit will be increased to £15,000 (from £11,520), and there will no longer be a lower cap on the amount saved into a cash account. So you can now save any combination of amounts up to £15,000 overall between cash and your stocks and shares (Wrap) ISA.
These changes will have effect from 1 July 2014.
NS&I: A boost for Ernie, but 2 cheers for pensioners?
Two key measures were announced for savers with National Savings and Investments. Premium Bonds get a decent fillip: increased investment (£30,000 to £40,000 in June 2014, up again to £50,000 in 2015/16) and bigger prizes (two £1M prizes a month from August 2014).
But do pensioners do so well? The proposed fixed rates on the Pensioner Bond look attractive – 2.8% gross/AER for a one year term, and 4.0% gross/AER for a three year bond. There’s a £10,000 maximum investment limit and the income will be taxable.
Starting rate for savings tax plummets to 0%
A good news story from the Budget? It will be for those with no or low earned income, but have some income from savings. Not only is the savings rate of income tax falling from 10% to 0%, but also the savings rate band increases to £5,000 in 2015/16. This band is only available to set against savings income and is lost if your earned income exceeds the personal allowance plus the £5,000 band.
Tax allowances and thresholds
- The personal allowance, set at £10,000 for 2014/15, will rise to £10,500 in 2015/16 for those born after 5 April 1948. At the same time, the level at which income tax becomes payable at higher rates will rise by 1% to £42,285, meaning that higher rate taxpayers with incomes below £100,000 will also be better off by £184 – a little less pressure on the ‘squeezed middles’.
- Age related allowances will remain at £10,660.
- From the 2015/16 tax year, a spouse or civil partner who doesn’t have income to fully use up their personal allowance, will be able to transfer up to £1,050 to their partner, provided that partner is a basic rate taxpayer.
Capital gains tax – As previously announced, the annual exemption will rise by £100 to £11,000 in 2014/15, and to £11,100 in 2015/16.
IHT – The nil rate band will remain frozen at £325,000 until 2017/18.