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How does the Chancellor’s 2014 Budget affect you?

Budget bag

Did you tune in to the Chancellor’s Budget announcements? How was it for you – do any of the proposed changes have an impact on you and your finances? Here’s our digest…

There was some good news for savers as the Chancellor announced that the Isa allowance is being changed to one single and simple £15,000 allowance. So instead of keeping £5,760 away for a rainy day, from 1 July you can bump that up to £15,000 (if you’ve got the money that is) and flit between cash and the stock market with your entire balance. And the 10p tax rate for savers is also to be abolished.

A new Pensioner Bond from National Savings & Investments will also be launched in 2015, with up to £10bn of these bonds issued and a maximum of £10,000 can be saved in each bond. These will pay 2.8% for a one-year bond and 4% in a three-year bond tax-free – well above current market rates.

And the Junior Isa allowance is increasing to £4,000 with transfers from CTFs to Junior Isa set to be allowed from 6 April 2015. Good news for all those who shared their concerns over not being able to turn their child’s trust fund into a Junior Isa over the last few years.

Major changes in pensions

George Osborne also announced a radical overhaul of pension savings and the ways that you can access them. The big announcement is that, from next year, you’ll be able to withdraw your entire pension savings in one go if you wish – no longer will you need to buy an annuity to convert your savings into an income. And you won’t face a 55% tax for doing so, just paying tax at your marginal rate.

But Mr Osborne also introduced some short-term changes. From the end of March, the income requirement for flexible drawdown will fall from £20,000 to £12,000 and the capped drawdown limit will rise from 120% to 150%.

The size of the lump sum small pot will rise five-fold to £10,000 and the total pension savings you can take as a lump sum will almost double to £30,000.

On the housing front, the first part of the Government’s Help to Buy scheme, Help to Buy equity loans, will now run until the end of the decade. Government-backed Help to Buy equity loans are available to help people with a 5% deposit to buy a new-build property. And Mr Osborne also announced that 15,000 new homes will be built in Ebbsfleet, Kent, as part of a new garden city development.

So what were your budget highlights – the new 12-sided £1 coin, the potential to boost your Isa allowance of the hope of changes to your potential retirement fund?

Comments
Profile photo of John Ward
Member

When news of the new £1 coin was announced I immediately wondered whether this was in some way connected with the possible secession of Scotland in the event of a referendum majority in favour – especially since the new coin would not be introduced into circulation until 2017. If the two kingdoms in a disunited realm would not share the sterling currency, there would be advantages in strong differentiation between the coinage. Already, the Pound coin is very close in size to the One Euro coin so a change is desirable. The obverse design of the new coin is clearly marked Elizabeth II which would be incorrect in an independent Scotland as Queen Elizabeth I was not a Scottish monarch.

Member
D B Keating says:
21 March 2014

Your reasoning anbout the introduction timing is likely correct but the statement as to whether Elizabeth II is relevent to an independent Scotland is a little hypothetical. It has already been stated that Scotland would have to develop its own currency. In fact, it may have to develop two currency regimes, like a lot of other countries which try to base their economy on oil and gas extraction, The US$ would be used for international trade and another currency, shall we call it the Alba, would be used for domestic transactions.

Member
John McIrvine says:
23 March 2014

Why call it the Alba ? I wasn’t aware the rest of the UK had the sole right to use the word ‘Pound’

Profile photo of BrianHBrocklehurst
Member

Sorry if you vote to leave the Union then you leave EVERYTHING behind and start again as all others have done in the past eg South Afria, India etc.
I was born in England and have resided in Scotland for 42 years but I’m still British as on my Passport, and always will be. If Salmond and his followers have their way then they will no longer be eligible for a UnitedK passport. The same applies to Currency.

Member
Ali Sco says:
23 March 2014

Nor will you. If everything has to change then a new name will be needed for the UK which will according to your logic have ceased to exist

Profile photo of BrianHBrocklehurst
Member

Currently UK is comprised England ,Scotland and Wales
Great Britain is England, Scotland, Wales and N Ireland.
So there still be a United England and Wales as they have so far not indicated to withdraw.

Member
Ali Sco says:
24 March 2014

I wouldn’t imagine the name of Great Britain as an island wouldn’t change and would still comprise the countries of England, Scotland and Wales. The country which also incorporates Northern Ireland and of course all the other islands such as Orkney etc is currently called the UK and this is what the passports hold of course. It would have to mean that Scottish residents would no longer hold a UK Passport as if Scotland becomes independent then there would be a need for Scottish passports
Of course this leaves the other countries with a decision regarding the name of the rest of the Union. I personally would see no reason why it would need to change but possibly it should. The name came about following the unions of the Scottish and English crowns after all

Profile photo of John Ward
Member

Replying to Brian . . . Actually, Northern Ireland is not part of Great Britain. The UK’s full title is the United Kingdom of Great Britain and Northern Ireland. Great Britain comprises England Scotland and Wales. England, Wales and Northern Ireland would still be able to claim the title “United Kingdom” if Scotland left, and any country can call its currency unit the Pound just as many have chosen to use the word Dollar. The Kingdom of Scotland would also be able to mint a coin that was virtually identical to the UK’s new pound coin if it chose to.Maybe it would be divided into 100 Groats [or Bawbees perhaps]. Scotland could also keep anything with the word “Royal” as a prefix and I believe the appellation “Her Britannic Majesty” would still be correct in the invocation printed on the inside cover of a Scottish passport.

Profile photo of BrianHBrocklehurst
Member

Many thanks for the correction.
Brian.
Dundee.

Profile photo of John Ward
Member

I think the news for people with enough spare money to put some away for later was good and the ISA wil soon be NISA. I was confused by what the Chancellor said on the withdrawal of the 10% starting rate of tax on income from savings; it wasn’t clear whether this applied to all savings interest [including dividends?] or only up to £5,000 aggregate savings income.

The changes to the defined contribution pension arrangements are helpful but it remains to be seen whether it will be the right move as life-expectancy rises. The inclination to cash in one’s pension pot and blow it while you can might be tempered by the tax implications [attracting the marginal rate] but I think annuities will still make sense for a large number of people. More effort will need to go into removing people’s distrust of these products and the poor management associated with them.

People on low incomes, with not much in the way of savings that they can lock away, and with half-empty pension pots, do not have much to celebrate in this budget except that things they should probably not be spending their money on will be fractionally cheaper [yet, by a miracle of fiscal and commercial prestidigitation, invisibly so]. The changes to air passenger duty are a welcome inclusion. The extended stimulus for house purchase and the determination to build a lot more new homes are also much needed.

Member
Roger Felgate says:
21 March 2014

Ref paragraph 1: Savings interest is that which is potentially taxable at your marginal rate (10%,20%,40% or 45%). Dividends are taxed at 10% or 32.5% and are not classed as savings income.
In the current tax year the first £2790 of savings interest over your personal allowance is taxed at 10% provided you do not have taxable income from employment/ pensions. Every £1 of employment/pension income over your personal allowance reduces the 10% savings band by £1, so if taxable employment/pension income exceeds £2790 all savings income is taxable at 20% or higher. The budget simply replaces the £2790 with £5000 and the 10% rate with 0%

Member
Pat Raftery says:
21 March 2014

The problem is we don’t trust the companies who provide the annuities. These are major companies who make huge profits by underpaying annuities. There will be new “products” to attract those who wish to cash in so I would hang on, read up as much as you can and don’t forget you still have to pay tax at your marginal rate. Everybody’s finances and personal situations differ so there aren’t going to be any easy answers. BE CAREFUL!

Member
Sue says:
21 March 2014

At last something for those who have worked hard, saved and put some money away for their retirement. It has not been easy. Half of our pension savings where stolen when Gordon Brown was Chancellor, we haven’t had a pay rise for 4 years as we work long hours for a charity not the NHS, the money we have been able to save has not made any interest and we are not guaranteed a healthy pension like some public sector workers. Will we spend our pensions all at once. It could be tempting. We have been careful with our money all these years and gone without when necessary so we are not likely too.

Profile photo of Davy Nook
Member

As a baby-boomer I have been a good boy and saved for my retirement whilst paying the reasonable tax to provide for a decent pension for my parents and others. Considering the privations they endured and their inability to save during the conflict I joined most people in happily supporting them. It was reasonable to pay for free University education for others in the days of 15% and more mortgage rates (albeit reduced in effect by MIRAS). Unfortunate that by the time my own children went to University I had to pay the thick end and be ready to cover their student loans. My 35yr old ex RM son by dint of circumstance is back living with me and I do not begrudge that.

It is necessary to give financial support to my daughter and her husband and my grandchildren for their housing costs so I do it.

This budget freezes my tax allowance (again) reducing my pension in real terms but my small private pension precludes me from any other benefit or tax credit (indeed I am still paying income tax) above my basic state pension which will not be increased to the new 2016 standard level.

Petrol and alcohol duty freezes help those who indulge and are able to consume large quantities of either or both.

I am a selfish baby-boomer who is in a “poverty” trap created by this government’s changes without any opportunity to “draw down” or even to aspire to take advantage of NISA or the pensioners bond to any significant degree.

Profile photo of rosealee
Member

What fun the budget has been. I can now spend all my time in the bingo halls and pubs. On a serious note it has come far too late to offer anything to retired pensioners apart from the wealthy. Having spent all my life working on a modest salary was only able to save small amount into a pension to supplement my state pension. Complete waste of time as find I cannot access any other benefits as just over the limit. Any savings long disappeared owing to miserable returns on cash.Increased cost of living on all basics ie heating,electricity and food means little left over for any treats.Heating allowance frozen again. Why give so much help to couples with children earning 300k? Always feel Government would prefer it if all retired people just quietly died. We have without doubt paid for the crash,worked hard ,tried to save a little as encouraged,betrayed by Government and the Bank of England. Too little too late.Seen through election ploy. Feel if I hear the phase ‘hard working families’ again will go senile! Implies single people are not included. So depressing that all the main parties offer nothing to those on low incomes just demonstrates how removed they are from real life.Could be ruled by martians for all the understanding Government has of the man or woman in the street.

Member
Herbert Edmonds says:
21 March 2014

The increase in the ISA allowance is welcome. Why not complete the job and make ISAs inheritance tax exempt? The increase in Premium Bond subscription will also be welcome for those who have cash deposited in low interest paying savings accounts

Profile photo of dodger
Member

At last, I cannot fathom why they didn’t increase the premium bond amount that you can hold, the year after the crash. It’s a good way for the government to increase the money available to them as well as increasing our opportunities. It would have been better though if they had increased the amount immediately and made it 100000 that you could put in if you so wanted to
On the pension side the pension companies now have an incentive to offer better deals if they want our funds to be left with them. Sadly though I think too many people will be tempted to take the money out to pay the mortgage off, pay debts, or take a holiday. A decision that they will live to regret, if they then go on to live a long life.
In years to come it will cause problems for the families of people who do not choose wisely

Member
Bob Cuin says:
21 March 2014

The Royal Mint could take back all the old £1 coins, drill a hole near the edge, fit a key ring and then charge £2,00 each (plus VAT) for use in shopping trolleys!. Save the cost of modifications to the trolley coin slots.

Member
Paul Thornton says:
21 March 2014

Could this be a business opportunity?

Member
Shaun C says:
21 March 2014

Personally whilst I welcome to relaxing of the pension system, I am fairly sure they will have to overturn this decision once the dust has settled. The finance houses, insurance companies and banks are destined to lose vast amounts of “usable funds” and if this is the case, they will not allow it, despite the obvious benefits for the average pensioner.

Also and this is personal opinion, who on earth do the Conservatives think they are playing with reducing the tax on beer and bingo? It is clearly a political move which, in the face of immense misery, crime and poverty evidence surely gambling and alcohol abuse should not be encouraged by a “caring” government?

Or do they think we will just enjoy our pension savings in the pub and bingo hall? Forgetting al our troubles and letting us “eat cake”? It is a ridiculous affront to our intelligence as an electorate and deserves our disgust.

Note: I am neither anti gambling or anti alcohol. Merely seeing through the spin.

Member
Reg Corns says:
21 March 2014

I have a SIPP from which I take income annually
Not that I would.
But could I take the capitol as a lump sum.
Or could I convert the fund to a house building scheme from which I could profit
to produce my income.
Reg Corns

Profile photo of malcolm r
Member

Reg, from April 2015 “whatever the size of a person’s defined contribution pension pot, we propose they’ll be able to take it how they want, subject to their marginal rate of income tax in that year”. So it seems that you can take as much out as you like. But if you take a lot you will pay up to 45% tax on it

Member
bernie says:
21 March 2014

an apparent giveaway budget – bearing in mind the upcoming general election in 2015 – cynical or what?

Profile photo of malcolm r
Member

John Ward – your question on savings income. Tax will be 0% on up to £5000 of savings income. As your personal allowance is £10500, if non-savings income is no more than this you will pay no tax, and then £5000 of savings interest is tax-free. So you can get up to £15500 tax free in earnings plus savings interest. However, if your income is above £10500 this eats into the savings allowance – only the bit between your non-savings income and the £15500 limit will be tax free. If your non-savings income is £15500 or more, all your savings interest will be taxed at your marginal rate (e.g. 20%).

Pensions – a great move to give us the choice. We should all be responsible for our finances and how best we use the money we have saved for retirement. Annuities are a risk-free assured income for life, and may suit some. Others may be better off with a SIPP, or investing or using the money just how they wish – their personal circumstances will be the main factor in the decision. If someone chooses to splurge it they have that choice – but the disincentive will be they will pay up to 45% tax on the amount they take.

We tend to focus on the items that affect us directly, but I think encouraging manufacturing (doubling the tax-free capital allowance) and making more loan support available to exporters are very positive moves to help the economy to grow longer-term – which will end up being of benefit to all of us,

Profile photo of John Ward
Member

Thanks for that explanation on tax on savings, Malcolm. As I expected, every silver lining has a cloud in front of it. They giveth with one hand and taketh away with the other.

I entirely agree with you on the other fiscal chnages that will strengthen the economy structurally.

Paganlady has reminded us that the Winter Fuel Allowance has not been uprated. Perhaps the intention is to let this wither on the vine. Or maybe there will be a treat in the next budget [a few weeks before the General Election] – like double the allowance and tax it at the marginal rate. Only supposing . . .

Profile photo of malcolm r
Member

John, Thanks. It is a silver (or copper) lining for some. The previous savings income was taxed at 10% (I believe) and limited to £2880. So those with low earnings and some savings (e.g. on state pension with cash pot) could benefit.

Profile photo of BrianHBrocklehurst
Member

Winter feul and Child benefit should be taxed so that only the most need have the full benefit.
Taxation initially was for raising income but should now be uased to redistribute earned wealth.
Brian. Dundee.

Member
Hilary says:
21 March 2014

Only thing in it for us as far as we can see is the freeze on fuel hike. Have already taken out an Annuity so all my pension is lost if I die too soon. I calculate I will have to live to 90 to get all my money back, let alone any interest on it. Don’t drink beer or do bingo. Savings rates are so small under the bed looks good, cannot afford to put £15000 into an Isa and their rates are even less.

Member
vicky says:
21 March 2014

Well, i have to say not a lot unless you are a pensioner, or earn over £40,000, i wish, when is the next election?

Member
daveg says:
21 March 2014

As a pensioner I cannot see where this budget has made any difference to myself.I shall never have the money to do all the things suggested in this budget.Where does he think we get money from when we’ve bought our shopping and paid all our bills.When we travel on buses using our passes you look at all the passengers and think this bus would be nearly empty if you took all the pensioners off.Look at supermarket restaurants at dinner time and you could say the same thing.Give pensioners more money and they would spend it helping the economy.

Member
David Georgeson says:
21 March 2014

I invested money in an AVC. The pot is now about £16000 but I have failed to take an annuity as the income offered was derisory-ie £7 a week and I would need to live to 91 to recoup my £16k! Can I withdraw my money from the scheme in 2015?. .

Profile photo of malcolm r
Member

David, as I understand it, from 27th March this year you can take out £10k, and from April 2015 as much as you want (may be taxable, of course)

Profile photo of Beryl
Member

The changes to Isa’s will not help the worse off I feel. £15K invested in a share Isa will only benefit the longer term interest of younger higher rate tax payers, if they can afford it after paying off uni loans and high mortgages. Some pensioners are already having to supplement their annual pension income with hard earned savings, so long term interest is not really a viable option for them. If it is now possible to “flit” from one to the other, I can’t see the point in doing this until interest rates improve as George Osborne must be fully aware. With interest rate rises unlikely for some time to come it seems futile to invest £15K in a cash Isa [or split it] when tax advantages would be minimal.

No doubt a pre election inveigle to boost Tory ratings.

Member
Russell smith says:
22 March 2014

The freedom from IHT for emergency workers seems to show a typical Tory rich boy disconnect from reality. How many emergency workers die on duty each year? And how many of them are going to leave estates above the IHT threshold of ?£325k to someone other than a spouse who would be exempt anyway? I think we are talking about a couple of people a year.

Member
Keith Paterson says:
23 March 2014

Who are these emergency workers ? So difficult to define it is impossible to draw lines. Soldiers ? Generals ? Firemen ? Fire chiefs ? Policemen ? police chiefs as well ? How about the ‘specials’ ? Paramedics, ambulance drivers ? Traffic wardens ? Nurses probably are more at risk than the average fireman, who sits and waits for the occasional chimney fire.

Member
Pat Gladstone says:
22 March 2014

The Budget made not one iota of difference to my as a Pensioner. I don’t play Bingo, I don’t drink beer, I can’t buy an ISA and my savings have been reduced to nothing There is a large proportion of voters that nothing has been done for at all.

Member
liam says:
22 March 2014

The government has demonstrated yet again, that they are completely out of touch with what they insist on calling ‘hardworking people’. Do they think we all wear flat caps and keep whippets and pigeons? There was nothing for me in this budget.

Profile photo of william
Member

I loved the pension changes I just wish they’d reverse the decision that I have to wait til I’m 55 ( up from 50) before I can get at it. And if they’re worried that people will just spend it, add a provisio that if you take the money you can’t claim benefits if you then run out.

I particularly liked the ISA changes, as they almost exactly matched something I posted on an MSE forum page about what we’d like to see happen.

Member
Norm says:
22 March 2014

The budget was as always a big con. Penny off a pint is laughable. Extra cash in an ISA, waste of time when the interest rates are still so low. What concerns me more is what was not in the budget or at least hidden away. The big one being the introduction of a property tax. I don’t believe them when they say it will only be on houses worth £2 million. Every house will be revalued and you can bet every band will go up and they’ll introduce extra bands at say 500k, 750k, 950k etc. It will happen and people who have lived in their homes for 40 years but are on a modest pension will get hammered. My wife has already been robbed of £16000 lost pension that she should have started to collect last year but has now been moved back to Nov 2016. Not a word about how they intend to keep the lights on when we have no power stations left but they can find multi billions to send to Ukraine who are not even in the EU. What’s really depressing is the alternative sitting on the benches opposite. This country needs a good shaking up and there’s only one party who can see it and I intend to vote for them.

Profile photo of BrianHBrocklehurst
Member

This is the first Budget I can remember, I’m almost 76, which there is not 1p advantage for Pensioners in particular single ones.
Those who have called for Pensioners to bare more of the cost of the incredible mess made by the B’s, not only banks but politicians, in both this country and the USA have completely won the battle.
Any spare cash they had has been wiped out during the past 8 years so what advantage can they get from the new ISA limits. Annuities have been taken long ago. When I took mine I would have to live to 104 to get my initial pot back. Thankfully I did it 12 years ago and not now. I’m sick of hearing politicians saying it is their duty to look after their aged populations. This Budget demonstrates they do not care at all but we are a drain on their resources.
An economy based on house ownership will alawys be at the mercy of the money markets.

Profile photo of MicPorter
Member

I am confused – but I assume I am expected to be. As I understand it, as a teacher in a teachers pension scheme, I will not be able to get the whole lump sum paid and will still have to buy an annuity. Or am I wrong?

Profile photo of malcolm r
Member

Mic, my understanding is if your scheme provides an income plus a lump sum then you can presumably take all the lump sum, but not the money on which the income is based. If your scheme only provides a lump sum, then you will be able to do with it what you choose after next year – bearing in mind what you withdraw is taxable. Anyone know differently?

Profile photo of JillSaunder-Airs
Member

As a teacher in the TPS you are eligible for a lump sum payment plus your monthly pension. The lump sum and pension are based on your earnings x number of years of service. At the time of your retirement, the TPS will send you the option to take the minimum lump sum and full monthly pension, or a larger lump sum and a smaller monthly pension. Fortunately I have a son in finance and he advised me “If you were a saver, you should take the larger lump sum, however, you are a spender so you should take the basic lump sum and the full monthly pension!” It was good advice. The TPS should let you know what your anticipated pension will be, try looking on-line or write to them for information.

Member
Keith Paterson says:
22 March 2014

Pensioner’s budget. Makes me laugh. A good one for the wealthy who can shelter their investments from 40% tax in ISAs and stuff a million in a 4% bond. And to flatter people that they are wise enough not to splurge their pension pot when they get their hands on it. When it’s gone the taxpayer will have to pick up the tab when they then plead poverty at 90.
He must have upset some of his financial mates, having ruined their rip off game of providing poor annuities for doing very little. Sorry to say, the average Joe in the uk doesn’t have the first clue about how to invest and many will be delighted to grab the cash and run.

Profile photo of malcolm r
Member

There seems a good deal of inequity in life – when an OAP is supposed to exist on £140 a week (£7280 a year) and others get benefits Capped (!) at £25000; when many public servants get gold plated pensions rising with inflation, subsidised by the other taxpayers and pensioners on poor annuities. But that’s life. Many will benefit from the budget – not all of whom pay 40% tax or have millions to invest. Some sensible steps in the right direction. Particularly when thrift is rewarded.

Member
Reg corns says:
24 March 2014

An independant Scotland could lead to the end of the union flag . This would have a knock on effect in parts of the commonwealth.
Many Scotsn live off the work and sacrifices of their own countrymen and women who move around the kingdom and the world to support family back home . Many of those would like to stay in the Union.
Now I go to Canada, the Quebecians campaigned to go French and leave the principle of a united Canada, they saw their future lay in a Canada for all. I suggest the Scots think likewise. A drop of oil inthe north sea is no guarantee for the future.
sometimes I really think think Scots are their own worst enemy.

Profile photo of rogermac
Member

I took out an annuity, but it is only £950 per year, with these new changes in the budget can I now take the full cash value or am I stuck with the annuity??

Profile photo of malcolm r
Member

rogermac, an annuity is effectively an insurance that you have purchased and it is not possible to reverse the transaction – stuck with it for life. That is my understanding.