Budget 2015: pensions and savings changes explained
George Osborne gave pensioners and savers more access to their cash in his budget speech this afternoon, telling MPs that people "should be trusted with their own money".
While new freedoms were announced in last year's budget allowing people to access their pension pots for any purpose, rather than being forced to buy an annuity, those who already had annuities were stuck.
But the chancellor has now promised that they will have restrictions on selling their policies removed from next April - although he added: "For most people, sticking with that annuity is the right thing to do".
Annuity holders will be permitted to sell their annuity income without paying the 55-70% tax that's currently charged. The annuity holder would get a lump sum, taxed at their marginal rate, while the annuity provider would carry on making payments to the new buyer.
Meanwhile, Osborne announced a cut in the lifetime allowance – the maximum amount that can be saved into a pension – from £1.25 million to £1 million.
While this will be a blow to higher earners, who will lose the tax relief on their retirement savings over £1 million, the chancellor claimed this would affect fewer than 5% of people. And, he said, the 55% tax rate over the lifetime allowance will be cut to the saver's marginal rate.
"It is no surprise that the lifetime allowance has again been reduced. This has been on the Chancellor's agenda for some time," says James McLeod, head of pensions at AES International.
"And while George Osborne has predicted that only 5% of people approaching retirement will be impacted by the reduction, those who are effected could lose out substantially."
For savers, there will be more flexibility too. Owners of ISAs will be allowed to withdraw and replace money in the same tax year without it counting towards their annual ISA subscription limit for that year. The Isa allowance for the 2015-16 tax year will be £15,240.
And a new "Help to Buy" ISA scheme will give first-time buyers a £50 top-up for every £200 they save. There will be a cap, meaning that the maximum a saver can receive is £3,000, if they save £12,000 themselves. And it will only be available on houses worth £250,000 or less, rising to £450,000 or less in London.
Meanwhile, Osborne announced a new "personal savings allowance" to come in next April next year, so that basic rate tax-payers won't be taxed on the first £1,000 of savings income, with the limit falling to £500 for higher-rate taxpayers. This, he says, will abolish the tax on savings for 17 million people.
"For the first time we're seeing the difference between ISAs and normal savings accounts being made smaller than ever, with savers feeling the benefit," says Kevin Mountford, head of banking at MoneySuperMarket.
"The introduction of Help to Buy ISAs for first time buyers is a radical step, and should really help get more people on the property ladder. With the Government providing up to £3,000, this could be a substantial chunk towards a first home, and could effectively pay the entirety of stamp duty or legal fees, for example."
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