Archive for the ‘Budget’ Category

What Does The 2016 Budget Mean for Pensions?

Tuesday, March 8th, 2016

What Does The 2016 Budget Mean for Pensions-On 16th March 2016, Chancellor George Osbourne announces the 2016 Budget.

Speculation on what will be changed has been on-going for months with recent reports (BBC, 2nd March) suggesting that the government was considering:

  • Abolishing the 25% lump sum which pensioners are allowed to withdraw tax free when their pensions mature
  • Cutting the maximum annual contribution
  • And perhaps even abolishing the entire tax relief system.

Rumoured Changes to Pensions

Tax relief on pension contributions is a growing issue for the economy. Employees benefit from tax relief because the portion of their income that goes into their pension is not taxed. Currently, the more income tax you pay, the more tax relief you receive on your pension contributions. Changes to this system could save the country a lot of money, and benefit some pension savers too.

HMRC data shows that total tax relief on registered pension schemes doubled between 2001-2 and 2013-14. At the moment, pension contributions are not taxed, but money taken out is taxed. Top rate taxpayers get 45% tax relief on their pension, higher rate taxpayers get 40%, and basic rate taxpayers get 20%. Higher rate and additional rate taxpayers receive two thirds of tax relief. Life expectancy continues to rise, meaning that tax relief on pensions is costing the country more as time goes on.

Flat Rate of Tax Relief on Contributions

One option that was considered was bringing in a flat rate of tax relief on contributions. Changing the system so that everyone gets the same level of tax relief would save the government a huge amount of money and benefit most ordinary people. However, this would be unpopular with wealthier people and, according to some, more difficult to administer.

The second option was to change pensions to resemble Individual Savings Accounts (ISAs). With an ISA or the possible new style of pension, contributions would be taxed beforehand via income tax, but withdrawals from the pension pot would not be taxed.

A less drastic option is for Osbourne to reduce the maximum pension contributions that individuals can make in a single tax year. Currently, everyone can save up to £40,000 per year into a pension. According to the BBC, it is “highly likely” that this will reduce, perhaps to as low as £25,000.

This option is less radical than overhauling tax relief, but it could be significant for people who have fallen behind on pension contributions and want to catch up as they approach retirement. The annual allowance has been reduced previously, being cut from £50,000 to £40,000 in 2014. Savers who want to contribute more than these amounts may want to consider getting pension advice soon, as future budgets may see further cuts to this allowance.

Latest News on Pensions in the 2016 Budget

On the 5th March it was reported that the Chancellor had ditched the proposed changes to tax relief on pensions. This means that upfront tax relief will remain, and there will be no flat rate of tax relief after all. However, these changes may still happen in future. An anonymous source at the Treasury told the BBC that this was “not to right time” to make these changes. The proposed changes would have cost the wealthy but encouraged lower earners to save more for retirement.

The announcement was disappointing for some, including the National Pensioners Convention, but ex-pensions minister Steve Webb said it was the right decision. Eleanor Garnier, the BBC’s political correspondent, speculated that the decision not to reform pension tax relief at this time may be related to the upcoming EU referendum, with George Osborne steering away from upsetting voters.

What Can You Do?

Although tax relief is not being addressed in this Budget, Osbourne still has the option of reducing allowances and making other changes to the system. Pension savers of all ages would do well to monitor their own arrangements, get pension advice from qualified pension advisers, and ensure they are contributing enough to see them through in light of changes that may or may happen next week.

If you are looking for advice on pensions, you can contact the advisers at Maxim Wealth Management for a free consultation: 0141 764 0040 (Glasgow office) 0207 112 8654 (London office)

The Pension Changes You Need to Know

Friday, February 5th, 2016

The Pension Changes You Need to KnowGeorge Osborne delivered his Spending Review and Autumn Statement on the 25th November last year.

In this statement the Chancellor did not announce any radical changes to the private pension system, for the first in this Parliament. He did however set out proposals for other areas regarding pensions which are detailed below.

The full changes will be understood in the March 2016 Budget.

New Basic State Pension

The new basic state pension will increase by £3.35 to £119.30 a week on April 6, the biggest rise in 15 years.

A New Flat-Rate Pension Will Be Implemented

There will be a new flat-rate pension set at £155.65 a week for anyone who reaches state pension age on or after April 6 next year. For someone working full-time today this equates to approximately 60% of the living wage.

The new flat-rate pensions aims to eliminate the current, complicated systems in which people receive a basic pension as well as extra payments based on their NI contributions.

Auto-Enrolment Delayed

A planned increase in the minimum pensions contributions employers would have to give their staff has been pushed back. The auto-enrolment, originally planned for October 2017 and 2018 will now come into force in April 2018 and 2019 instead.

Changes to Pension Credit

People who claim pension credit will have their payments stopped if they are out of the UK for more than four weeks. This replaces the old limit of 13 weeks.

The State Pension Age Will Rise

From 2020, the state pension age will be 66 for both men and women. This will increase to 67 between 2026 and 2028, and will be then linked to life expectancy after that.

ISA Allowance Frozen

The ISA allowance will be frozen at £15,240 and at £4,080 for Junior ISAs.

Are You Confused About Pension Changes?

If you are confused about the changes in pensions, or are unsure what the best saving vehicle is for you and your family, you should speak to a financial adviser who will be able to explain the possible options available to you.

Maxim Wealth Management are an independent financial advice company, with offices in Glasgow and London, covering the whole of the UK. To discuss your pension or retirement please contact us today:

Email: enquiries@maximwm.co.uk

Glasgow: 0141 764 0040

London: 0203 841 9941

2015 Summer Budget Review

Thursday, July 9th, 2015

EmergencyBudgetThe first only-Conservative budget since 1996 was eagerly awaited by some and dreaded by others. Freed from the restraining hands of the Lib Dems he was free to produce the budget he wanted. In his sights were benefits, tax credits and student grants, while he also indicated a slightly less draconian approach to austerity.

Good news on the economy

From the outset, he was keen to promote the government’s economic credentials. Britain was growing faster than any other major advanced economy at 2.6% in 2014. Over the next few years, GDP would be 2.5% in 2015, 2.3% in 2016 and 2.4% in 2019. Employment is on the up and 1,000 extra jobs have been created every day.

The work to cut the deficit is to continue albeit at a slightly slower rate than before. The much longed-for surplus has been postponed by a year until 2019-20. Borrowing is expected to fall from £69.5bn this year to £43.1bn, £24.3bn and £6bn over the following few years culminating in a £10bn surplus in 2019/20. Debt, as a share of GDP, is at 80.4% this year and will fall to 79.8%, 77.8%, 74.8%, before it reaches 71.6% in 2019/20.

In taking a slightly gentler approach to balancing the books, the government will be spending more than was previously planned. According to the Office of Budget Responsibility, it will be spending £83bn more than announced in the March budget. The squeeze on public sector spending will end a year earlier.

Welfare

If the pace of austerity is a little slower, benefits were still firmly on the chopping block. Working age benefits have been frozen for four years including tax credits. Child tax credits will be restricted to two children after April 2017. The level of tax credit withdrawal will be reduced from £6,420 to £3,850. Young people will be forced to either earn or learn, meaning they will no longer be automatically entitled to housing benefit.

In pensions, a new green paper published by the government opens the way to a significant change in the way we save for pensions. If the changes, which will be open to a public consultation period are adopted, pensions will become more like ISAs with people able to earn a tax-free sum that is topped up by the government. Meanwhile, the triple lock on the state pension will be maintained and tax relief on pension earnings restricted to £10,000 a year for those earning in excess of £150,000 per year.

Tax and pay

As expected, the rate at which earners enter income tax has been increased again. That pops up to £11,000 as the government edges closer to its target of £12,000. The rate for the 40p rate rose from £42,385 to 43,000. As predicted, inheritance tax has received another cut. The threshold increases to £1million from 2017 with people being able to transfer an extra £175,000 “family home allowance” to their children tax-free on their death.

However, the headline grabber was the theft of an old Labour policy. The minimum wage would be replaced which something labelled as a National Living Wage. This will start at £7.20 an hour in April 2016 and will rise to £9 an hour by 2020, replacing the £6.50 per hour minimum wage. However, the levels more or less match predictions for the minimum wage over the same period. Critics were quick to argue that they had done little more than rebrand the existing system.

Osbourne spoke at length in support of non-dom tax arrangements, which he said were crucial to encouraging investment in the country, but he accepted the system needed to change and abolished permanent non-dom status. Anyone who has been living in the country for 15 of the last 20 years will be forced to pay the same amount of tax as everyone else.

Tax avoidance will also be targeted, with £750 million going to HMRC to target tax avoidance and evasion. With users of complex evasion schemes being named and shamed, he hopes to raise an estimated £7.2bn.

Business

There were a number of measures designed to appeal to businesses. Corporation tax is to come down from 20% to 19% in 2017 and 18% in 2020. The bank levy, which has sparked wails of protest from the City, will be decreased to 0.21%, to 0.18%, reducing to 0.1% in 2021.

Small businesses had reason for cheer with an increase in the level of national insurance provisions. From 2016 this will rise by 50% to £3,000. At the same time, though, he made moves to clamp down on attempts by businesses to exploit loopholes such as setting up separate companies for each of their employees to reduce National Insurance contributions.

There are more moves to spread the wealth a little wider with attempts to spark faster growth away from the capital. Dusting down the Northern Powerhouse, he spoke of more powers being given to Greater Manchester and an Oyster card style travel system across the region. However, moves to electrify parts of the rail network in Northern England have been postponed, giving Harriet Harman a chance to lay into the plan in her response. “You can’t build a productive economy on a political slogan,” she said.

Any other business

This was a budget packed with policies. Among the other announcements was a restriction of Mortgage interest relief for buy-to-let mortgages to the rate of income tax. The rent a room relief is to be extended to £7,500 and the NHS will receive £8bn of extra funding. There was also a slight surprise in a commitment to meet NATO targets of spending 2% of GDP on defence. The UK had been widely expected to fall below this figure. Maintaining the 2% figure will require significant reinvestment into the armed forces.

Students suffered a hit with the removal of maintenance grants to be replaced by loans. However, to make up the shortfall the size of the loans is to be increased to £8,200. This will be repayable once the student’s earnings exceed £20,000.   

This was a budget the budget most people expected. For the Conservatives it has intended to place them as the party of fiscal responsibility. Osbourne said he hoped to set a standard that would require all future Chancellors to only spend as much as they brought in. Critics, meanwhile point to the cut in housing benefits to the young, the removal of maintenance grants, benefits caps, and tax credit cuts, as well as the absence of green issues.

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