In his penultimate budget before next year’s general election, the Chancellor announced some fairly radical changes to pensions and savings.
On the pensions front, the headline grabber was the proposed major change to how people draw their pension. The plan is that all restrictions on an investor’s access to their pension pots are to be removed, which ends their requirement to buy an annuity.
Currently, most investors aged 55 or over can take up to 25% of their pension fund as a tax-free cash sum, using the rest to purchase a taxable income, usually via an annuity. However, the budget has proposed that from April 2015, people will be able to take the whole of their pension fund as a lump sum after age 55. The first 25% of this lump sum will be tax free, whilst the rest will be subject to tax at the investor’s marginal rate. This will provide a great deal more flexibility for pension investors.
In addition, the Chancellor announced the introduction of a new Pensioner Bond, paying "market-leading" rates. These will be launched in January 2015. Issued by National Savings and Investments (NS&I), the interest rates are not yet set, but are likely to be 2.8% for a one-year bond and 4% for a three-year bond. Up to £10,000 can be saved in each bond and take up is expected to be big.
Elsewhere on the savings front, a major increase was announced to the Isa allowance. This is rising to £11,880 on 06 April 2014 but then will increase significantly to £15,000 on 01 July 2014. It was also announced that Cash and Stocks and shares Isas will effectively merge, which means you can now split your Isa allowance as you choose, between a Cash ISA and Stocks & Shares ISA. Currently you can only save up to half your Isa allowance in a Cash Isa.
You will also be able to transfer from a Stocks & Shares Isa to a Cash Isa, and vice versa. Currently you can only transfer from a Cash Isa to a Stocks & Shares Isa. The allowance on Junior Isas is being increased to £4,000 from 01 July 2014.
Other measures see the 10p tax rate for savers being abolished whilst the cap on Premium Bonds is to be raised from £30,000 to £40,000 in June 2014 and then to £50,000 next year.
The point at which people start paying income tax is being raised to £10,500, whilst the threshold for the 40p income tax rate is to rise from £41,450 to £41,865 next month and by a further 1% to £42,285 next year.
The above are just some of the salient highlights of the budget. Contact your Kellands financial adviser for a fuller briefing on all the pension and savings changes.
The budget certainly creates new opportunities for investors, and the new Isa rules make them even more attractive and valuable. If you have not used your £11,520 allowance fully for this year, contact Kellands Bristol now to do so before the 05 April deadline.