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Budget 2017: How do the chancellor’s measures affect you?

Pensions

Several pension changes are being enforced from April 6 this year, thanks to announcements made in George Osborne’s Budget last year:

  • Anyone on the flat-rate state pension will see their weekly payments go up by £3.90.
  • From April 6, the state pension will rise by 2.5 per cent, meaning that those on the new flat-rate state pension will see their weekly payments increase from £155.65 to £159.55.
  • While those on the old state pension will see their weekly payments go from £119.30 to £122.30.
    The lifetime allowance will also change from April 6, meaning that the amount people can put into their pension pots over their lifetimes – while qualifying for tax relief – will drop from £1.25 million to £1 million.
  • The Spring Budget documents do mention the state pension age, which is currently be reviewed and could rise into the early mid-seventies.
  • If you have started to take your pension, how much you can then pay into your pension under the Money Purchase Annual Allowance (MPAA) and get tax relief on is being cut from £10,000 to £4,000 from April 2017.
  • From 9 March 2017, transfers from UK Registered Pension Schemes to Qualifying Recognised Overseas Pension Schemes (QROPS) will be subject to a special 25% tax charge unless both the individual and the QROPS are in the same country after the transfer or other specific conditions apply.

Personal tax

The Personal Allowance

  • The Personal Allowance will rise from £11,000 to £11,500 in 2017/18. The point at which higher rate income tax kicks in will increase from £43,000 this year, to £45,000 in 2017/18. Once the Personal Allowance reaches £12,500 (planned for 2020), it will increase in line with inflation.

Dividend allowance

  • The £5,000 tax-free allowance, which only arrived in 2016, is being cut to £2,000 from April 2018. This measure aims to raise approx. £1b pa by 2020 and is an attempt to discourage incorporation (approx. 657,000 companies were incorporated in 2016). It will hit both company owners who draw dividends, as well as shareholder investors more widely. Typically, general investors will need over £50,000 worth of stocks and shares outside an ISA to be affected.
  • National Insurance contributions: increasing for the self-employed
  • As already announced, Class 2 National Insurance Contributions (NICs) for the self-employed will be abolished in 2018. However, Class 4 NICs will increase from 9% to 10% in April 2018 and go up to 11% the following year.

Non domiciled individuals

  • As announced at Summer Budget 2015, from April 2017 non-UK domiciled individuals (‘non-doms’) will be deemed domiciled in the UK for tax purposes where they have been UK resident for 15 of the past 20 tax years. Additionally, individuals who were born in the UK with a UK domicile of origin, but have acquired a domicile of choice elsewhere, will be deemed UK domiciled for all tax purposes while they are UK resident. Non-doms who set up a non-UK resident trust before becoming deemed domiciled in the UK will not be taxed on any income and gains retained in that trust.

Universal Credit taper will be reduced from 65% to 63%

  • In Universal Credit, as a person’s income increases, their benefit payments are gradually reduced. The taper rate calculates the reduction in benefits as a person’s salary increases. Currently, for every £1 earned after tax above an income threshold, a person receiving Universal Credit has their benefit award reduced by 65p and keeps 35p. They will now keep 37p for every £1, from April 2017.

Stamp Duty Land Tax: accelerating receipts

  • As announced at Autumn Statement 2015, the government consulted in 2016 on a reduction in the Stamp Duty Land Tax (SDLT) filing and payment window from 30 days to 14 days, as well as on the SDLT filing and payment process generally. After consideration of the responses, the government will delay the reduction in the filing and payment window until after April 2018.

Money, pens and paper

Savings and investments

Junior Individual Savings Accounts (ISAs) and Child Trust Fund limit

  • The annual subscription limit for Junior ISAs and Child Trust Funds will be up-rated in line with the Consumer Prices Index (CPI) to £4,128.

ISA

  • The ISA subscription limit increases from £15,240 to £20,000 ‎from 6th April 2017. All types of ISA subscription use up part of this limit (except Junior ISA subscriptions).

Lifetime ISA (LISA)

  • In the Budget last year it was also announced that a new “Lifetime ISA” would be launched in April 2017, helping young people get onto the property ladder or save for retirement.
  • The ISA, which will be available for those aged 18-39, will allow people to save tax-free with the bonus that the government will top up the savings by 25 per cent.
  • Funds can be withdrawn tax-free to put towards a first home or saved until a person turns 60.

New National Savings bond

  • A new savings bond will be available through National Savings & Investment (NS&I) from April 2017. The Chancellor has confirmed that the bond will have an interest rate of 2.2% gross, and a term of three years. Savers over the age of 16 will be able to deposit up to £3,000, with a minimum investment of £100.

Life insurance policies – part surrenders and part assignments

  • The tax rules for part surrenders and part assignments of life insurance policies will be changed to prevent excessive tax charges arising on these products. The legislation is due in Finance Bill 2017, following consultation.There will also be a consultation on changes to the categories of assets that life insurance policyholders can choose to invest in without giving rise to an annual tax charge under the personal portfolio bond legislation.

Business Issues

Corporation tax

  • There will be no change to what has been previously announced; the rate of Corporation Tax will continue to be reduced in stages to 17% by 2020/21. These measures aim to make the UK competitive from a tax perspective and attractive to foreign investors.

Tax-advantaged venture capital schemes

The Government will amend the requirements of the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs). These amendments:

  • clarify the EIS and SEIS rules for share conversion rights – for shares issued on or after 5 December 2016 rights to convert shares from one class to another will be excluded from being an arrangement for the disposal of those shares within the ‘no pre-arranged exits’ requirements for the EIS and SEIS;
  • provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures, to align with EIS provisions, for investments made on or after 6 April 2017;
  • introduce a power to enable VCT regulations to be made in relation to certain share-for-share exchanges to provide greater certainty to VCTs, which will take effect on the date from which Finance Bill 2017 receives Royal Assent.

Business Rates changes in England

  • There will be £435 million to support businesses affected by the business rates relief revaluation, meaning no small business that is coming out of small business rates relief will pay more than £600 more in business rates this year than they did in 2016-17.
  • Included in the above figure, there will be funding for local authorities will allow them to provide £300 million of discretionary relief to provide help to businesses most affected by the revaluation. From April 2017, pubs with a rateable value up to £100,000 will be able to claim a £1,000 business rates discount for one year.

Tax avoidance

  • New measures to combat tax evasion and tax avoidance aim to raise £820m, plus a new financial penalty will be introduced for professionals who promote tax avoidance arrangements which are later defeated by HMRC.

Social care

  • £2 billion for adult social care over the next three years to help councils to provide high quality social care to more people and help to ease pressure on the NHS. A Green Paper will be published later this year looking at the long term financing of social care.

Tax-Free Childcare

  • Tax-Free Childcare will provide up to £2,000 a year in childcare support for each child under 12 (up to £4,000 for disabled children up to the age of 17). Parents of younger children will be able to apply for the scheme first, with all eligible parents able to access the scheme by the end of the year.


For further help with any aspect of your financial planning needs, please don’t hesitate to call the advisers at Bread and Butter Advice on 0844 770 7726.

Latest Market Commentary

Today investors are confronted by a vast multitude of market issues, click here for the latest news and commentaries brought to you from some of the fund managers at Liontrust.

John Husselbee: View from the front row

In the first of a new regular series for Professional Adviser magazine, reviewing the hot topics that have been keeping him busy over the past month, John Husselbee from Liontrust, considers issues thrown up by the so-called active/passive ‘debate’.

To read the full article click here.

 

Why Invest?

George CritchleyGeorge Critchley, Director at Bread and Butter Advice, discusses investments…

My favourite investment book is ‘The Richest Man in Babylon’ by George S Clason, first published in 1928. Yes before even the first Wall Street crash!

The book deals with the personal successes of each of us. Success means accomplishments as the result of our own efforts and abilities. Proper preparation is the key to our success. Our acts can be no wiser than our thoughts. Our thinking can be no wiser than our understanding.

Babylon became the wealthiest city of the ancient world, because its citizens were the richest people of their time. They appreciated the value of money. They practiced sound financial principles in acquiring money, keeping money and making their money earn more money.

I will share with the reader one or two tasters that make this book so compelling.

A PART OF ALL YOU EARN IS YOURS TO KEEP….. Say that last sentence to yourself once again. “You mean that I should put a bit away, each week, each month, each year.

Easy to say, not easy to do, or is it? By starting this process a person, any person, can work their way out of darkness into the light.

George Clason describes the following:

A person has much GOLD when they know the 5 laws of GOLD and abide by those laws.

richest-man1Wealth that comes quickly without the application of these laws goes away quickly. Just think of the stories of many of our current day lottery winners.

So tell me these 5 laws I can almost hear you saying. So I don’t spoil the book for you I will include the first 3 only.

FIRST LAW…GOLD COMETH GLADLY AND IN INCREASING QUANTITY TO ANY PERSON WHO WILL PUT BY NOT LESS THAN ONE-TENTH OF THEIR EARNINGS TO CREATE AN ESTATE FOR THEIR FUTURE AND THAT OF THEIR FAMILY.

SECOND LAW….GOLD LABORETH DILIGENTLY AND CONTENTEDLY FOR THE WISE OWNER WHO FINDS FOR IT PROFITABLE EMPLOYMENT, MULTIPLYING EVEN AS THE FLOCKS OF THE FIELD.

THIRD LAW…..GOLD CLINGETH TO THE PROTECTION OF THE CAUTIOUS OWNER WHO INVESTS IT UNDER THE ADVICE OF PEOPLE WISE IN ITS HANDLING.

Better give us a call then.

Understanding sustainable investing

baba_fb_avatarSustainable investing conjures up images of so-called “green funds” that invest solely in wind power, solar panels and other renewable technologies.

The reality is that over the years there have been many misconceptions about what are and what aren’t, ‘sustainable’ funds. In the same way that your investment goals will be unique to you, your views on sustainable investment will also be unique to you. Investors seeking a ‘sustainable’ strategy need to be confident that their money is being used in a way that really does make a social difference whilst meeting their financial needs.

Known under many different headings – ‘socially responsible’, ‘green’ or ‘ethical’, a sustainable investing strategy seeks to maximise environmental, social and financial gains. It’s about people, planet and prosperity.

On the rise, many investors may worry that if they invest “sustainably”, they will not get a decent return on their money. Sustainable investing is of course about making a return, investors are becoming more aware that they don’t necessarily have to choose between “doing well” and “doing good”.

 

It’s not all about avoiding the bad guys

It is now relatively mainstream for investors to wish to screen out investments which may harm the planet, its people or the global economy, or for them to look carefully at how a company is run before investing in it – and still expect to make some money.  It is less about negative screens and more about steering capital towards companies or projects that generate positive, measurable social and environmental returns.

When asked nearly 3/4 of advisers*, stated that requests for sustainable investment advice remains high.

Investors care about the legacy they leave for their children and grandchildren.

Sustainable investing is growing quickly and has become mainstream. Investors can participate fully or partially via their pensions, ISA’s or general investments.

Talk to your financial adviser, about your investment needs.

*Source: Voice of the Adviser 2015

Reality Check: The impact of Britain leaving the EU

brexit-referendum-uk-1468255044bIX

Whichever way you voted in the referendum on June 23, the impact of Britain voting to leave the EU is still reverberating and while it’s still very early days, we understand that some people may be concerned about both the short and long term impact on their finances. The key as always is to study the facts and leave the scaremongers behind.

Stock markets

Prior to June 23 the stock market had rallied and a Remain vote was expected and had been factored in by many fund managers (as well as the bookies), so when a Leave result came in overnight it was no surprise that the stock market reacted negatively to the news.

Despite this, Britain’s premier stock index, the FTSE 100, has since gathered pace and has reached 11-month highs. While analysts on Monday 11 July credited the FTSE’s rise to the news Theresa May had succeeded David Cameron as Prime Minister, the truth is the index has been surging after the Brexit vote. The blue-chip index has gained nearly 16 percent since its post-Brexit low on June 24 and is up more than 20 percent from February.

Most recently, on the 14 July, the FTSE 100 was caught on the hop after the Bank of England’s Monetary Policy Committee unexpectedly voted against any change in interest rates from their historic low of 0.5 per cent. Shortly after the announcement the FTSE 100 fell marginally into the red, down by 3.0 points at 6,668.8, but soon turned up again – trading up 8 points at 6,677.7.1 by 4pm that day and still closing higher than the days following the Brexit announcement.

Trade deals with other countries may be easier to win

Simply because we can just negotiate and agree, we do not need a consensus among 28 quarrelling, disparate countries. We traded with the rest of the world, and the EU, before the EU was invented and can do so again.

Non-EU countries like Norway, Iceland and Switzerland have their own trade agreements and are doing just fine. The UK will also be able to re-negotiate trading terms with the EU and non-EU countries alike. The US, India, Australia, New Zealand, South Korea and Mexico have already expressed interest in getting deals done fast.

“In the long term, Brexit will herald a major growth-boosting period, as the UK breaks free of the over-mighty EU with its protectionist mindset and establishes free trade and intelligent regulation aimed at UK economic interests,” said Patrick Minford, Professor of Applied Economics at Cardiff Business School.

Currency

As anticipated following the Leave vote, the pound has devalued. However, The Bank of England decision to hold off on an interest rate cut on July 14 sent the pound soaring. The devaluing of the pound obviously increases UK’s imports but export costs will go down.

The devaluing of the pound doesn’t necessarily need to be seen as doom and gloom. Yes, the price of importing goods into the UK will increase, but this will reduce our spending on imports and instead we will be more likely to buy domestic goods.

The price of UK exports will be lower in foreign currencies. Foreign buyers need less currency to buy the same quantity of UK goods.  Therefore a weak pound means UK exporters can sell their goods cheaper and / or increase their profit margins. A weak Pound should help British manufacturers and exporters. This will increase the competitiveness of UK exports and should cause an increase in demand for UK exports.

Inflation

A weak currency can increase the chances of inflation, as we effectively purchase fewer goods and services than we did pre-Brexit. How this will play out is unknown at this stage, but it will be monitored closely by the Government and the Bank of England.

Interest rates

Against expectations, the Bank of England has decided to keep the base rate at 0.5 per cent.  In addition, the quantitative easing programme will not be expanded.

Those with mortgages who were hoping for a drop may think they have missed out, however, since the referendum a number of lenders have introduced brand new low 10 year fixed term rates, which could be attractive to those wishing to lock in for the long term with the certainty of known repayments and protection against possible rate rises in future.

Also, The Bank of England’s decision not to cuts rates means there is no further pain for savers with ISA’s and saving accounts.

Conclusion

As financial advisers we are positive. We are committed and spend a great deal of time and effort in rigorously researching and advising on solutions where we believe the manager clearly adds value and has the ability to navigate financial markets, both good and bad. True Bearing follows a multi asset investment philosophy, and a benefit of this is reduced fluctuations in values. Our fund managers built some Brexit protection into their portfolios.

Financial advisers should always focus on and advise consumers to invest for the longer term, that should not change, nor does this event to leave, alter that remit. There are always considerations to alter the strategy of investment because of events that affect markets. This is why advice and understanding precedes informed decision-making.

When it comes to investments the mantra remains; past performance is not a guide to future returns, and in a post Brexit UK this is probably more relevant than ever and this doesn’t just apply to investments.

Time is now needed to allow things to settle down and to create a new norm. Keep calm and carry on, as the saying goes!

In time this so called cataclysmic event will merely be a small ripple in the sea of history.

In the wake of Brexit don’t panic, think long term…

As you will no doubt now be aware, the UK electorate has voted to leave the European Union.

Despite the best efforts of the media to send the world into turmoil, our advice is simpEU referendum1le, do not panic.

The Bank of England, has responded to ease fears of the potential for economic difficulties confirming that £250 billion will be made available to the UK banks and liquidity available for foreign currency. More consideration and strategy will follow from the Bank.

Whilst no one is able to predict exactly what is going to happen over the next few weeks and months, it seems safe to say that there will be volatility in markets. However, they will recover, we have witnessed this several times before. We know that uncertainty and shock events leads to a sharp market downturn historically.

Please do not panic, we certainly are not. On the day on which David Cameron set the referendum date in February, the FTSE 100 index stood at 5950. At the close of play on Friday 24 June, the day the result was announced, it stood at 6138. Yesterday (30 June 2016) it closed at 6504. The numbers speak for themselves.

As financial advisers we are positive. We are committed and spend a great deal of time and effort in rigorously researching and advising on solutions where we believe the manager clearly adds value and has the ability to navigate financial markets, both good and bad. True Bearing follows a multi asset investment philosophy, and a benefit of this is reduced fluctuations in values. Our fund managers built some Brexit protection into their portfolios.

Whilst as a consumer and investor you may well be anxious about the short term implications of this outcome, we are not. Our belief and that of many of the leading fund managers, financial services experts and financial companies is that we consider there to be opportunity in the markets for investors.

Advisers should always focus on and advise consumers to invest for the longer term, that should not change, nor does this event to leave, alter that remit. There are always considerations to alter the strategy of investment because of events that affect markets. This is why advice and understanding precedes informed decision-making.

The key is to stay calm and not to panic. Go for a run this weekend. Drink a decent wine (yes the French, Spanish and Italians will still want to sell us their produce!), or watch the footy or tennis.

In time this so called cataclysmic event will merely be a small ripple in the sea of history.

Millions of homeowners facing ‘mortgage time bomb’

The ever increasing cost of living is eclipsing thousands of people’s prospects of retiring completely debt-free, with over 100,000 homeowners aged 65 and over still struggling to pay off their mortgages. The issue is a result of 140425-mortgage2 (1)changes to traditional working patterns, as well as the average age of a first-time buyer rising to 35.*

As well as impeding many people’s ability to retire debt and stress-free, outstanding mortgage debt later in life can pose financial risks.

Despite best intentions, some people may not be able to continue to receive a regular income through working full-time, for example due to health issues, impacting upon their ability to meet monthly repayments.

Meeting monthly mortgage repayments whilst income takes a hit during retirement years can also impact on day-to-day living costs such as food and household bills.

“Some people will not be able to continue working and they may not have capacity to do so, particularly if they are in roles that require heavy labour or lifting. But many people will have to extend their working lives because they will not be able to afford to not work. We are seeing people who are taking on part-time roles as a way to top up their income.”**

Additional research released by the Council of Mortgage Lenders (CML) has also warned that homeowners approaching their retirement years with interest-only mortgages face a potential ‘mortgage time bomb’.

Millions of interest-only mortgages were sold, prior to the financial crisis, to borrowers looking to pay off just the interest, not the capital. Lower monthly repayments, compared to being on a repayment deal, also meant many borrowers opted into these mortgages in order to borrow a larger amount, in some cases more than they could actually afford.

Poorly performing repayment vehicles, such as endowments, which run alongside a mortgage to cover the cost of the repayment upon reaching retirement, are expected to impact massively on millions of borrowers.

Returns on endowments, in particular, are significantly lower compared to a few years ago when homeowners signed up to the policies. In fact, the Financial Conduct Authority (FCA) predicts that 150,000 borrowers will see their interest-only mortgages mature every year until 2020, of which 60,000 will extend the term.

Shockingly, the regulator anticipates 42,000 of the extended term interest-only mortgages to be held by people aged over 65, of which a great deal are in negative equity.

Even more worrying is the fact that around 37,000 borrowers aged over 60 have no repayment plan in place to cover the impending mortgage costs.

There is a potential mortgage time bomb ticking, with pensioners paying home loans way past traditional retirement ages. Some can afford to pay off their mortgages, but many will face income shocks and could really struggle if they still need to pay off a home loan as well as paying for the basics.

The issues facing millions of people approaching or already in their retirement years are widely believed to be behind a spike in the number of people seeking retirement advice and the sales of equity release plans.

If you are concerned about how you are going to repay your mortgage you should take action sooner rather than later. There may be many options available to you if you act in time. Some of the options include converting your mortgage to capital and interest, extending the term, switching to a new lender and type of mortgage or refinancing to a different type of borrowing.

If you would like to chat to a specialist in confidence, please call us on 0844 770 7726.

 

*More2Life, 2015
** Stephen Lowe, head of external affairs at Just Retirement

A Budget For Savers And Investors

George Osborne

Savings

ISA limit

  • From 6th April 2017 the ISA limit will increase to £20,000

Lifetime ISA

  • A new Lifetime ISA will be introduced in April 2017 for the under-40s
  • The allowance will be £4,000 per annum, which will form part of the annual £20,000 total ISA allowance
  • Investors will receive a £1 government top-up for each £4 saved, added at the end of each tax year
  • Investors can withdraw their capital tax-free to buy their first house (up to a value of £450,000), after the age of 60 or if terminally ill. Other exceptions may apply.
  • Withdrawals at any other time will have a 25% charge
  • It will be possible to roll-over the existing Help to Buy ISA into the Lifetime ISA, retaining the £4,000 contribution limit.

Pensions

  • Major reforms to pensions were expected in this Budget until that speculation was largely squashed in the press earlier in the month
  • Public sector employer contributions will rise as a result of a revaluation applied to the discount rate used for public sector pensions. This is designed to ensure public sector pensions remain sustainable
  • The reduction to the lifetime allowance, from £1.25m to £1m, will proceed in April. Higher earners will face a reduced annual allowance, tapered down to as low as £10,000 a year depending on the level of their earnings

 

Taxation

Capital Gains Tax (CGT)

  • There were big cuts to capital gains tax, with the two rates of this tax cut from 28% and 18% to 20% and 10% respectively.
  • These CGT cuts come into force at the start of the new tax year in April, although the tax will remain at its current rates for gains on residential property and carried interest.
  • From 17 March, there is to be a lifetime limit of £100,000 on the CGT exempt gains that an individual can make on the disposal of shares acquired under employee shareholder

Personal Taxes

  • The income tax personal allowance will increase to £11,500 in April 2017, on track to reach the government’s target of £12,500 by the end of this parliament.
  • From April 2017, the higher rate income tax threshold will rise to £45,000 from its current level of £42,385 with a £50,000 target by the end of this parliament

Dividend Tax

  • As already announced, the dividend tax credit will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from 6th April 2016. Dividends that exceed this allowance will be taxed as follows:
    • Basic rate band – 7.5%
    • Higher rate band – 32.5%
    • Additional rate band – 38.1%

Stamp Duty Land Tax (SDLT) on purchases of additional residential properties

      • The higher rates will be 3 percentage points above the current SDLT rates, and will take effect on and after 1st April 2016.

      • The main rate of corporation tax will be cut to 17% in 2020. It currently stands at 20% and is scheduled to be reduced to 19% next April, before falling to 18% in April 2020.
      • Business rates will be cut for all properties in England, with the small business rate relief threshold increased to £15,000 from £6,000 permanently from April next year.
      • As of 17 March 2016, the 0% rate on commercial stamp duty will apply on purchases up to £150,000. Commercial property stamp duty will be 2% on the next £100,000 and 5% top rate above £250,000.
      • The Chancellor also introduced a new 2% rate for high-value commercial leases with net present value above £5m.
      • There were some more anti-avoidance schemes announced in the Budget for big businesses, designed to raise an additional £12bn of tax revenue by 2020.
      • Entrepreneurs’ tax relief will be extended to long term investors in unlisted companies. A rate of 10% of capital gains tax (CGT) for gains on the disposal of ordinary shares, provided they are held for a minimum of three years from 6 April 2016
      • Detailed action to shut down disguised remuneration schemes was announced- such as employee benefit trusts (EBT) which sought to avoid the payment of national insurance contributions – with targeted rules expected to bring £2,5bn into Treasury coffers by 2020/21
      • Businesses will have their employer NI bill cut by another £1,000 from April 2016, as the Employment Allowance rises from £2,000 to £3,000

          • From November 2015 the standard rate of Insurance Premium Tax was increased from 6% to 9.5%. The Budget announced that the standard rate of IPT will be increasing again by 0.5% to bring the rate up to 10% (lower than expected).
          • From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020.
          • Fuel duty was frozen for a sixth consecutive year, saving the average driver £75 a year.
          • All schools in England are expected to be converted to academies by 2020, or to have an academy order in place to convert by 2022.
          • The soft drinks industry will face a new ‘sugar levy’ designed to reduce childhood obesity. This levy will fund a doubling of the primary schools sports premium to £320 million per year from September 2017.
          • The Money Advice Service, a free government backed financial guidance service funded by regulated financial services firms, will be scrapped.
          • £700m extra will be spent on strengthening flood defences

The headlines in the lead up to the budget have been very accurate.

That said George Osborne still manged to spring on us a number of surprises: we’re feeling positive towards the announcements of a fuel duty freeze and a reduction in the rate of CGT from 18/28% to 10/20% for investment assets.

As a hugely popular savings vehicle for many years now, the Lifetime ISA is major lift on the ISA system. It certainly adds an extra option to help savers get on the housing ladder or boost their retirement income.

As a Budget for ‘the next generation’ the Lifetime ISA looks like a response to encourage the young to save for their future. It makes savings easier to access for many, and will hopefully help entice the younger generation into a savings habit.

It may be seen as the first step on the road to a pension ISA for everyone, however pensions still offer greater potential for total savings. We must also not forget the government efforts with auto enrolment which appears to be engaging well with younger workers. Could this pose a direct threat to the one thing the government has worked hard to create?

Overall this was a Budget which savers and investors should cheer.

 

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This blog aims to provide information to help you make your own informed decisions. It does not provide personal advice based on your circumstances. If you are unsure of how suitable an investment is for you, please seek personal advice from our Financial Advisers.

Pensions Freedom – The Good, The Bad and The Ugly

Blog imageFinal Salary Pensions (Defined Benefits)

These schemes offer guaranteed benefits based on your years of service and final salary. Final salary can have many different definitions. It depends on your scheme rules.

For the majority of people final salary scheme benefits cannot be matched elsewhere, however the new freedoms have encouraged some members to want to switch to a Personal Pension, so that the cash can be accessed either in full or part.

This process is a minefield for clients and IFA’sas regulation and legislation clashes.

 

Personal Pension Scheme (Defined Contributions)

In these schemes money is invested in a pension pot and grows over the working life of the client. Previously the majority of holders would buy an annuity, at the point of retirement. An annuity is an income for life.

 

Giving us the freedom to choose how we take our personal pension benefits is commendable.

The changes which came into place will make pension saving more attractive for most. Gone are the restrictions that put off many. No need to buy an annuity, no excessive tax penalties.

Personal pension savers can be sure that more of the money saved will be available to you and your families.

That’s the way it should be. We are to be treated as grownups. Finally.

There will be consequences of course. Some good, some bad, some ugly. Here are a few that immediately sprung to our minds.

 

THE GOOD:

Flexibility and greater choice.

You can shape your retirement income to suit you. Pension freedoms are transforming the pension landscape, giving you more choice than ever before in shaping your retirement plans to best meet your individual needs and circumstances.

The new rules should give people more confidence to save in a pension as they will retain more control over their money.

Changes include freedom to access your entire pension fund, choices over how to receive the tax-free cash from your pension fund, changes to death benefits and changes to contributions you can make in to your pension fund.

THE BAD:

Likely to be one of the bigger issues awaiting the unsuspecting is tax. Aside from the risk of being pushed into a higher rate tax bracket on pension withdrawals, there is the matter of “emergency tax”.

People taking a lump sum from their scheme will be taxed as if they were starting the first of a series of monthly withdrawals which will continue for the rest of the year. Consequently, they will be given an emergency tax rate that pushes them up the tax bands – potentially to 45 per cent – and removes their tax-free personal allowance.

THE UGLY:

Those aged 65 could expect to live on average until nearly 85 *. How comfortable those years will be depends to a large extent on the decisions they make now. The big risk is that a generation may fritter away their pensions and have nothing for later in life.

Without careful management you could spend your entire pot and run out of money. Good advice will be crucial.

Could your creditors force you to hand over your pension pot to clear your debts? Or cover long term care costs? Only time will tell.

 

* Source data: Figures based on Prudential analysis of ONS figures for non-gender-specific period life expectancies at birth and at 65

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