19th March 2014
The Chancellor of the Exchequer George Osborne has heralded a savings revolution with a radical shake up of pensions, annuities, income drawdown and Individual Savings Accounts.
The annual Isa limit is to increase to £15,000 from July. The cash Isa and stocks and shares Isa regimes are to merge thus the cash Isa limit to nearly treble the current limit. Cash and stock and shares Isas can now be transferred into each other because of this single regime.
The current cash Isa limit is £5,500 while the maximum stock and shares Isa limit is £11,500. The junior Isa limit is also to increase to £4000.
The Government has also announced a radical overhaul of pension rules which will mean that from April 2015 anyone over the age of 55 will be able to take their entire pension pot as cash with the first 25% tax free with the remainder taxed at the marginal rate.
The Government is also launching a new pensioner bond through National Savings & Investments available to the over-65s with possible rates of 2.8% for the one-year bond and 4% for three-year bond.
Income drawdown is also to see a radical shake up. Osborne has announced that from 27 March 2014 the guaranteed pension income required for flexible drawdown will be cut from £20,000 to £12,000 a year.
The capped drawdown limit will also increase from 120% to 150% of the GAD rate, to allow more flexibility to those who would otherwise buy an annuity.
Osborne also announced a cut to tax on death on pensions in drawdown from 55% to a level that is yet to be specified. The Government said the current 55% tax meant the majority of people would purchase an annuity instead.
The government has also increased the amount pension savers can take as cash or ‘trivial commutation’ to £30,000 from the current £18,000.
It will also increase the amount for small individual pension pots that can be taken as a lump sum from £2,000 to £10,000. The number of small pension pots that can be taken into lump sums will also be increased from two to three.
In his speech, Osborne said: “Let me be clear, no-one will have to buy an annuity.”
The Treasury document says: “We have introduced the most fundamental reform to the way people access their pensions in almost a century by abolishing the effective requirement to buy an annuity, giving people much greater freedom over how they access their pension savings.”
Danny Cox, head of financial planning at Hargreaves Lansdown says: “Extending the ISA allowance to one single and simple £15,000 allowance, simplifying ISA rules to allow transfers, and extending the range of qualifying investments, is a significant boost for savers and the already highly successful ISA. One single allowance will mean that stocks and shares ISA holders who currently hold cash will no longer be subject a 20% deduction for tax”.
Andy James, advice policy manager at financial advisers Towry says: “Today’s Budget statement provided fundamental changes as to the structure of retirement funding in the UK. ‘Flexibility’ has been the buzzword, with pensioners able to take their entire fund as cash, and the maximum income a person in income drawdown can take is rising to 150 per cent. Both announcements should ensure people will not feel forced to take the first annuity they are offered upon retirement”.
“A recent Towry survey has shown that just 22% of retired adults took an annuity within their first year of retirement. At current annuity rates, a £1.25m pension fund (the new maximum lifetime allowance limit) would only initially provide an individual with around £40,000 per year in terms of a rising retirement income. The fact that so few retired adults are taking an instant annuity suggests that retirees are already thinking more flexibly about their retirement fund, as well as the fact that poor annuity rates are putting many off”.