One of the largest-ever shake-ups in the history of UK pensions, automatic enrolment (auto-enrolment) was introduced in 2012 to provide wider access to pension savings. A changing demographic backdrop means that people in the UK are living longer, but they are not saving enough to finance their increasingly long retirements. Before the advent of auto-enrolment, only 46% of UK employees were enrolled in a qualifying workplace pension scheme. (more…)
Archive for March, 2014
Budget 2014: What do the pension changes mean?
Posted byThe announcements made in this week’s budget set out some of the biggest changes to UK pensions for a generation.
Up until now, it has only been possible to draw an income from a pension by the way of a fixed income for life (an annuity) or by taking income withdrawals within prescribed limits (income drawdown). Taking the whole of a pension as a lump sum has only been available under flexible drawdown rules subject to already having a minimum level of income. For those that don’t meet these criteria, lump sum withdrawals have been heavily discouraged with a punitive 55% tax charge.
These rather inflexible and restrictive ways in which pensions could be accessed meant that many savers may have been discouraged from investing in pensions for their future retirement. The government has recognised this and along with auto-enrolment these new reforms are aimed at getting people saving for their own retirement and being less dependent on the state in their old age.
The changes, which will take full effect from April 2015, mean that in addition to the options available today retirees will now have the opportunity to withdraw lump sums from their pensions without limit, regardless of their level of income, to do with as they please. A quarter of it can be taken tax free as it can under the current rules, with the remainder taxed at the individual’s marginal rate of income tax.
Some have argued that a relaxation of the rules will lead to many blowing away their pension savings on frivolous things like cars & round the world cruises leaving them penniless and looking back to the state for help and support – exactly what the government are trying to get away from. Of course, there will be a large boost for the tax coffers. The full effects remain to be seen in the years ahead.
As an interim measure, for anyone retiring after 27 March this year but before the new rules take effect next April, a number of current limits are being relaxed. From the end of this month it’ll be possible to cash in small pension pots valued up to £10,000 or all of an individual’s pension pots if the total value of all pots is below £30,000. Also the maximum income available from drawdown will increase.
Overall, the changes highlight the growing need for financial advice. Most of us will only get one opportunity to choose the right retirement option and making the right choice is going to be more important than ever.
Please contact us for a free, no obligation, initial consultation to discuss your retirement plans.
Changes to the ISA savings rules
Posted byIn today’s Budget, Chancellor George Osborne unveiled a number of changes in the ISA system to help encourage savings.
Last year it was announced that from the new tax year commencing 6 April, the annual ISA limit was increasing to £11,880 with up to £5940 of this being able to be put into Cash ISAs.
Whilst this is still happening next month, from 1 July the Cash and Stocks & Shares ISA allowances will be merged into a single ISA vehicle, with an annual tax-free limit of £15,000. This will remove the differentiation between Stocks and Shares and Cash ISAs and effectively allow transfers back and forth between cash deposits and stocks & share based investments as needs change.
At the same time the range of investments that can be put in to ISAs will also be expanded. ISA eligibility will be extended to include peer-to-peer loans and all restrictions around the maturity dates of securities held within ISAs will be removed. The government is also exploring extending the ISA regime to include debt securities offered by crowdfunding platforms, we will await the outcome of this with interest.
We will provide clients with more information as it becomes available. For more information on this or any other matter of personal finance, please contact your adviser.