Budget 2014: Savers to benefit from ISA and pension reforms
THE Government will boost the ISA savings limit, scrap compulsory annuities and introduce a pensioner bond.
Investors were previously allowed to invest £11,520 per year into a stocks and shares ISA, and £5,760 in a cash ISA, up to an overall limit of £11,520.
The Chancellor will merge these into a single £15,000 pot from July. He said the motivation was the fact that three quarters of those who hit the cash ISA limit are basic rate taxpayers.
And in a major piece of tax reform pensioners will not have to buy an annuity and will be able to draw down as little or as much, with tax restrictions on access to pension pots removed. The changes come in from March 27.
It will still be possible to take a quarter of a pension pot tax free on retirement, as today. But anything else taken out of the pot will attract a regular 20% income tax charge, rather than the existing 55%.
The Chancellor said: “The tax rules around these pensions are a manifestation of a patronising view that pensioners can’t be trusted with their own pension pots. I reject that. People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances.”
He added: “And we’re going to introduce a new guarantee, enforced by law, that everyone who retires on these defined contribution pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have.”
The pensioner bond will be issued by National Savings and Investments with “market leading rates”. “The exact rates will be set in the autumn,” said Mr Osborne. “But our assumption is 2.8% for a one year bond and 4% on a three year bond”.
Up to £10bn of these bonds will be issued and a maximum of £10,000 can be saved in each bond. The Government is also increasing the maximum value of Premium Bonds an individual can hold from £30,000 to £40,000 and doubling the number of £1m winners.
Simon Walker, director at wealth manager Quilter Cheviot’s Liverpool office, said: “In a day when the economic recovery, and its imbalances, were made abundantly clear, the Budget leaned more to politics than sound economic micro management. Investment, exports and building all featured as headlines, but with little substance. Instead, savings and savers were the key focus.
“The opposition challenge regarding living standards is clearly hitting a raw nerve, so easier access to pensions, better terms for ISAs and Premium Bond investors represented the crescendo of the Chancellor’s speech. What did we expect with an election 15 months away?”
