Budget 2015: good news for savers, first-time buyers and pensioners

by Patrick Goddard, Independent Financial Adviser

By and large, it was the pre-election Budget that everyone expected; and it provided at least something for most people to smile about. 

Overall there was plenty of good news for our clients at every stage of their financial journey – along with some announcements that mean certain clients need to plan or take action soon.

Pensioners with annuities

For those who have already retired, the biggest headline was annuities.  From 2016 it is proposed that pensioners will be able to trade in their existing annuities for cash, if their provider permits it.  The cash can be taken as a taxable lump sum (with the 55% tax charge abolished and tax applied at the marginal rate); or it can be used to provide a flexible annuity; or invested to provide a flexible retirement income.

Consultation is already underway on the fine detail of these proposals. It remains to be seen whether this freedom will be extended to those already locked into a ‘defined benefit’ pension income that doesn't best meet their needs.

Do you need to take action?  There’s nothing you can do yet – but if you have an annuity it’s wise to start thinking about whether it serves your needs, or will do in the future.  A conversation with us now can help you start to think about your options.

High-earners

The Pension Lifetime Allowance will be reduced from £1.25m to £1m from April 2016.  This is the maximum total value that you can save in your pension fund without incurring a tax charge.  (This value will be index-linked from April 2018.)

For high earners with final salary schemes or more generous public sector pensions, this is something to keep in mind.  Even if your pension fund isn’t nearing the threshold now, it may do so in 10 or 15 years’ time.  Many people would be surprised at the capital value of their pensions and how close they may be to this threshold.

Do you need to take action?  It’s wise to know the projected value of your pension fund, particularly if you are going to retire soon after April 2016.  If it’s likely you’ll exceed the £1m level (and we can help you establish that) there are fund protection measures you can put in place – so it’s worth talking to us and planning now.

Savers

From April 2016 a proposed new Personal Savings Allowance will benefit both basic rate and higher rate taxpayers, irrespective of their level of earned income.

The allowance will be:

• Basic rate taxpayers: £1,000.
• Higher rate taxpayers: £500. 
• Additional rate taxpayers won't benefit from the new allowance.

On another positive note, savers will see interest paid gross, with no deduction of 20% tax at source by their bank or building society from April 2016. 

Cash ISAs will be made more flexible.  From autumn 2015, ISA savers will be able to withdraw and replace money from their cash ISA in the tax year, without it counting towards their annual ISA subscription limit.  Consultation is still to take place on the technical details.

The investment limit for premium bonds is rising to £50,000 from 1 June 2015.

Do you need to take action?  Not at the moment (other than making sure you have an ISA at a good interest rate). But keep an eye on the announcements due in the autumn.  Remember, too, that if you have significant sums in the bank or building society, there may be other ways that your money could work harder for you, such as investments.  We can talk that over with you.

First-time home-buyers

First-time home-buyers saving for their deposit could get a bonus on their savings under the proposed Help to Buy ISA from autumn 2015.

The scheme will provide a bonus on savings up to £12,000. For every £200 saved the government will add a further £50. So someone saving the full £12,000 would see the government add a further £3,000 to their savings, giving them £15,000 towards the purchase of their first home. This bonus isn't given at the point of saving, but is instead added when the saver buys the home.

The new scheme will be a form of Cash ISA and, in line with current rules, it won't be possible to subscribe to two separate Cash ISAs (Cash & Help to Buy) in the same tax year.

Savings will be limited to a maximum single initial premium of £1,000 and regular savings of £200 each month.  And to get the Government bonus, property values can be no more than £250,000 (£450,000 for properties in London).

Do you need to take action?  If you’re already saving for a home, or thinking about it, this will be a very welcome announcement.  Carry on saving, and watch out for the introduction of the Help to Buy ISA later this year.  In the meantime, why not talk to us about how much you could borrow on a mortgage, so you have a clear savings target in mind?