The Budget What changes were made?

Transcription

1 The Budget 2016 Spotlight This factsheet outlines the key changes announced in the 2016 Budget that relate to pensions and savings. The Pensions Advisory Service is unable to give individual specific advice and you should seek alternative tax or independent financial advice. What changes were made? The Introduction of the Lifetime ISA A new Lifetime ISA will be available from April 2017 for adults between 18 and 40. This product is aimed at helping people plan for their retirement or their first property purchase. They will be able to contribute up to 4,000 per year, and receive a 25% bonus from the government, paid at the end of the tax year. People can continue adding to their Lifetime ISA until age 50 to receive the bonus. Other details announced are: Funds can be taken from age 60 tax-free, including all bonuses added. Prior to age 60, savings and 25% bonus can be used to pay a deposit on a first UK home worth up to 450,000 and are limited to one per person not per home. Funds withdrawn before age 60, if not for the purchase of a first UK home, will attract a 5% charge and the government bonus will be lost (including any interest or growth). People with Help to Buy ISAs can transfer the savings to a Lifetime ISA in 2017 but only the bonus from one can be used to buy a house. The ISA limit is being increased to 20,000 for all ISA saving, your annual savings into a Lifetime ISA will be included in this figure. The Lifetime ISA can take the form of cash or stocks or shares, as for standard ISAs. You will be able to contribute to a pension and a Lifetime ISA, and the ISA will not count towards your annual allowance for a pension. Your pension remains a tax efficient way to save for your retirement, and if you are employed, you will benefit from an employer contribution, which is not the case for a Lifetime ISA. 1

2 Other Pension Changes Serious Ill Health Serious Ill Health payments are to be brought in line with the new pension flexibilities. If somebody is under 75 and has less than a year to live they can have a pension lump sum free of tax, even if they have already accessed some of their pension (e.g. from a drawdown policy). From age 75 onwards they will be taxed at their marginal rate of income tax, whereas before they could have faced a 45% tax charge. The pension provider would still have to consent to a serious ill health payment being made and therefore the customer would have to speak to their provider if they wish to pursue this option. There are inheritance tax considerations to be considered as well as the commuted money will form part of that person s estate if it is not spent by date of death, whereas this would not be the case if the money is left in a pension plan. Child Dependants Pension The Government is legislating to change Child Dependants Flexi Access Drawdown to allow them to continue to access their funds as they wish from age 23. Currently they have to use all their funds by age 23 or take a lump sum and be taxed at 45%. With the change they will be able to access funds at their marginal rate if the deceased died at age 75 or over and tax free if the deceased died under the age of 75. Trivialisation of Annuities The Government is legislating to extend trivialisation rules to defined contribution pensions in payment, which effectively would mean that annuities with a value of 30,000 or less can be trivialised. This brings defined contribution related pensions in line with pensions paid from defined benefit schemes. Pension Dashboard The government will ensure the industry designs, funds and launches a pensions dashboard by A pensions dashboard is a digital interface where an individual can view all their retirement savings in one place. Dashboards operate in a number of other countries and can help people track down all their pensions and to get a clearer idea of their retirement income. Inheritance Tax on Drawdown Funds As announced at the Autumn Statement 2015, the government will legislate to ensure a charge to inheritance tax will not arise when a pension scheme member designates funds for drawdown but does not draw all of the funds before death. This will be backdated to apply to deaths on or after 6 April (Finance Bill 2016). Lifetime Allowance It was confirmed that the lifetime allowance will reduce to 1m from 6 April

3 Other Changes Changes to income tax rates and allowances The personal income tax rate allowance will increase from 10,600 to 11,000 from 6 April 2016 and to 11,500 from 6 April This is the level up to which no tax is payable for most workers. The starting level of the 40% tax band will rise from 42,385 to 43,000 on 6 April It will then rise to 45,000 on 6 April Capital Gains Tax to be cut from 18% to 10% for basic-rate taxpayers and from 28% to 20% for higher rate tax payers from 6 April This change does not apply to residential property. 0.5% rise in insurance premium tax. The government is considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes but this limit will not affect pension savings. Class 2 NI contributions for self-employed people will be abolished from 6 April 2018 as previously announced. There will be reforms to Class 4 NI contributions with more detail to be announced. Help to Save Individuals in low income working households will be able to save up to 50 a month into a Help to Save account and receive a 50% government bonus after two years. Account holders can then choose to continue saving under the scheme for a further two years. The scheme will be open to all adults in receipt of Universal Credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage or those in receipt of Working Tax Credits. Accounts will be available no later than April Financial Advice Companies will be able to provide financial advice to employees with a value of up to 500 (currently 150) without it being treated as a benefit in kind and subject to tax. Consultation on a Pensions Advice Allowance. This proposal will allow people before the age of 55 to withdraw up to 500 tax free from their defined contribution pension to redeem against the cost of financial advice. The exact age at which people can do this will be determined through consultation. This means that a basic rate taxpayer could save up to 100 on the cost of financial advice 3

4 Other proposed changes to pensions The Government has been consulting on a number of potentially significant changes to pensions. The outcomes of these consultations were announced at the same time as the Budget and the key points are summarised below. Strengthening the incentive to save: summary of responses to the consultation on pensions tax relief The government has issued a summary of responses to the tax relief consultation. It has not come to any conclusion as yet regarding future changes; in the Budget speech the Chancellor stated that there was not a consensus of views. Public financial guidance review: proposal for consultation The government will restructure the statutory financial guidance providers Money Advice Service, The Pensions Advisory Service and Pension Wise. It will include: a new pensions guidance body, to make sure that consumers can get all their pensions questions answered in one place, at all stages of their lives. a new, slimmed down money guidance body. The consultation will run until June 2016 (reporting in the Autumn), with the new body in place no earlier than April Financial Advice Market Review Final report was also published The review said the definition of 'advice' should also be changed so that it is based on giving a personal recommendation. It said this would encourage more firms to enter the guidance market. The review calls for the government to consult on changes to legislation to narrow the definition of regulated advice so that it is based on a personal recommendation'. Create a single definition for regulated financial advice and remove some of the barriers that exist for firms wishing to offer guidance services. The review has also recommended the development of automated advice models. 4

5 About Us The Pensions Advisory Service (TPAS) works to make pensions accessible and understandable for everyone. We provide independent and impartial information and guidance about pensions, free of charge, to members of the public. We help with all pension matters covering workplace, personal and stakeholder schemes and also the State Pension. We answer general questions, help with specific queries and offer guidance for people with complaints about their private pension scheme. Contacting us Pensions Helpline (Monday- Friday 9:00am- 5:00pm) Online enquiry form Web chat live Write to us The Pensions Advisory Service 11 Belgrave Road London SW1V 1RB We regret that we are unable to accept visitors at our office. Please note that this guide is for information only. The Pensions Advisory Service cannot be held responsible in law for any opinion expressed, nor should any such opinion be regarded as grounds for legal action. 5