Our View of the Budget
Besides the normal boring news, a penny on beer, three pence on cigarettes and the usual ‘support for small businesses and hard-working families’, there was plenty of meaningful content to this year’s budget which will potentially have profound impact on the world of personal finance.
We are delighted that the Chancellor has decided to increase the ISA limit from 1st July to £15,000 and to breakdown the barrier between cash and stocks and shares. The ability to transfer from stocks and shares into cash has also been introduced, which is good news for those willing to take some risk but that would welcome the ability at times, to take a breather from markets.
You may have seen in the press that the ISA will acquire the nickname of the New ISA or NISA, which seems appropriate as the greater allowances and freedom that will be offered will certainly be nicer for most investors.
The increase in the ISA allowance is not an entire giveaway though – had the ISA allowance been indexed by the Retail Prices Index (RPI) when they began in April 1999 and now, then the annual allowance would be heading for this territory. Junior ISA allowances are increased from £3,720 to £4,000.
Pensioner Bonds will be issued by National Savings and Investments from January 2015 for the over 65’s with indicative interest rates of 2.8% AER for a one year fixed rate bond and 4.0% for a three year fixed rate bond. These rates compare favorably with what is currently on the market where the best rates are currently in the region of 1.9% fixed for one year and 2.7% fixed for three years.
The bonds will however be capped at £10,000 per bond and with many NS&I products, they will probably have limited availability. You will be able to hold one of both bonds meaning that a couple could in theory have up to £40,000 in these preferential bonds. They are also likely to be subject to income tax, reducing the net return received.
We would also liked to have also seen the return of NS&I Index linked certificates, but the introduction of Pensioner Bonds are a welcome development.
The most fundamental changes announced in the Budget (the rabbit from the hat?) were the changes to pension savings and access to capital. Gone is the punishing 55% tax charge for some withdrawals, which will simply be replaced by tax at the marginal rate. There will also be no compulsion to buy an annuity at retirement.
Those in pension drawdown will soon have access to income at 150% of annuity levels, rather than the current 120%. This figure was just 100% a couple of years ago so significant progress has been made here.
The qualifying level for Flexible (unlimited) drawdown will be reduced from £20,000 of secured income to £12,500. Access to ‘trivial’ pension accounts will also be increased from £18,000 at present to £30,000 in the future.
We are pleased that after years of attacks and cutbacks pensions are finally back in favour with the promise of a more ‘grown-up’ regime. We await fuller detail but are encouraged by the commitment to this important form of saving and wealth management.
One final observation in respect of the budget speech was the Chancellors commitment to ‘good quality, impartial face-to-face advice’ when people reach pension age. He stated that everyone should have access to such advice, but failed to outline how this would be financed.