/ Money

Your view: the highs and lows of the 2014 Budget

After Gareth highlighted some of the key announcements from this year’s Budget, many of you took the time to tell us how you feel it affects your finances. Here are your best bits.

Sue told us she was pleased that the Chancellor’s Budget will help savers:

‘At last something for those who have worked hard, saved and put some money away for their retirement. It has not been easy.’

But Hilary has a less than rosy view of the changes:

‘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 £15,000 into an Isa and their rates are even less.’

But there was a general positive feeling towards the pension changes. Malcolm R said it was:

‘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.’

Roger Furze, who gets our Comment of the Week, told us:

‘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.’

And Shaun C is nervous the pension proposals won’t stand the test of time:

‘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.’

And there was a little cheer in the savings corner, particular when it comes to Isa allowances as Herbert Edmonds told us:

‘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.’

Do the comments above reflect your views of the 2014 Budget? What else could be done to improve your financial lives?

Comments
Member

I can already see the vultures circling to con “hardworking people” out of their pension pots.

The annuity scam was bad enough, but the new situation will be worse.

People will be conned either by criminals, professional mis-sellers or by financial institutions and like the advertisers say “when it’s gone it’s gone”.

Member

Pensions have been a rip off for too long, from paying management fees regardless of whether your pot is going up in value even whilst you’re still paying in, too ridiculously low annuity rates. Yet these companies can still pay themselves huge bonuses.

Something had to change. I for one like the changes, even though my finances won’t allow me to make best use of all of them. Roll on 55, hopefully I’m close enough now that they can’t move the goal posts for me again. ( I was too young to get my money at 50).

Ed Miliband missed a trick with his post budget speech. So the deficit may be going down but isn’t the amount owed by the UK still going up ? And isn’t it more than when the last shower left office?

Member
smike says:
23 March 2014

Whilst the changes to ISAs are an unqualified change for the better, those for Annuities are overwhelmingly for the worse.
While it is accepted that a number of prudent and knowledgeable people will be able to benefit, the damage to the populace as a whole and to many pensioners individually will be hugely damaging.

Those who underestimate, or do not consider their future lifespan and overspend initially,will be reduced to a penurious old age.

These penurious will put an additional burden on the taxpayer if and when they need publicly funded healthcare

Those who wish to husband their savings prudently are likely to invest in buy to let, as the returns are better than most alternatives at present. This will result in even greater house prices, and further reduce the chances of people being able to afford to buy houses to actually live in.

Lastly – and most importantly of all – we cannot know the time and manner of our going, and prudence would suggest that without an annuity, pensioners should plan to eke out their cash until they are at least 95, to minimise the chance of being left with only their state pension – one of the worst in the developed world. If they do this they are very likely to spend much less of their savings each year than they could have drawn from an annuity. Result, a poorer income, and still a small chance of running out of pension funds.

The Annuity was specifically designed to offer a solution to this last dilemma, The annuity provider calculates the annuitant’s average life expectation, and also calculates the profit to be made in putting the sum in medium term Government Bonds.and then gives the pensioner a sum based on this accumulation, minus a charge for their own profit. The annuitant’s cash is immediately invested once the annuity is accepted, so that the Company issuing the annuity cannot make or loose more money than calculated due to market fluctuation giving the provider extra profit or in the case of losses, putting the pensioner at risk of the Provider becoming insolvent and unable to pay the Pensioner .

This clear benefit of the Annnuity has however, unfortunately been obscured by the high profits made by the providers, and the poor returns on Government bonds resulting from Quantitative Easing and consequent exceptionally poor interest rates.

The former shows that the Suppliers are not competing properly to provide good rates. They should be investigated, and if collusion found, the companies prosecuted, and profits capped.
The later is more difficult to remedy. The current sorry financial mess called our economy can be blamed on poor government, poor regulation, incompetent Banks, crooked derivative issue etc etc, but we are where we are, and the mature West is bound to decline long term relative to the emerging world. The Western economies will in the end however either get on top of their debts with long periods of prudence/austerity, inflate their way out of them, or renege on them. These will all have unpredictable consequences, and the least bad the saver or Annuity buyer can do is to ensure that they go for index linking wherever possible.

Member

I concur in that analysis which seems entirely rational to me. The trick will be to educate people into the virtues of long term financial planning for an increasing lifespan. For people coming out of defined contribution pension schemes [which is where this policy is aimed] there will still be a very powerful argument in favour of annuities. Likewise there will be a good case for a competitive market in with-profits life assurance plans and self-invested personal pensions. Responsible and trustworthy management are the key to the attraction of all these products.

Personally I think it is right that people should be allowed to use their nest-egg in a manner of their choosing.provided they have the necessary information, and the tax implications will guide their choices.The Chancellor said “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 wil now have”. It is vital that the financial regulators make sure that this means exactly what it says on the packet and does not get diluted too far as the gnomes of the investment industry get their gnarled and twisted digits in the mix. Which? will have its work cut out keeping an eye on this development, but I still think it is the right way to go.

Member
Rosie says:
26 March 2014

At last, someone who understands the principles of annuities! It’s about risk and life expectancy (giving a fair pension based on that risk) and not about a scam or ripping people off!
People are far more likely to be ripped off once they take out more cash and fall prey to a multitude of hard-sell schemes that promise benefits that may never materialise.
And in this “spend, spend, spend” Society, a huge proportion of people will no doubt just spend the cash instead of using it to provide for their future (and savings rates aren’t suddenly going to increase just because the annuity rules have changed!). So there will be a further drain on the public purse when those people are claiming benefits in their retirement!
And, if you don’t have enough to buy property, or if the property market crashes as it did in the 1990s, you’ll suffer that way too.
Regarding the rest of the Budget, middle earners continue to be penalised by the 40% tax rate (which is double the basic rate, rather than there being graduated increments!), whilst true high earners have to pay just 5% more than the 40% rate. 40% taxpayers who don’t have children don’t have the benefit of being to offset some or all of their 40% with tax credits and many couples are in the situation where one partner – often the former highest earner, or on similar earnings as the other partner – has lost their job and can’t find another (or is earning minimum pay or not much more) whilst the other is paying 40% tax! Yet the low paid partner can’t claim benefits because the other partner is earning – so it’s a lose lose situation that is affecting many middle aged people today, especially with so many large organisations still making women redundant around their 50th birthdays!
We need a fair tax system where partners can share their allowances, whether or not they are married (especially as the benefits system treat cohabitants as if they are married!). We also need a properly graduated tax system (eg 10%, 15%, 20%, 25%, 30% etc, up to at lest 75% for the really high earners). As things stand, there is no incentive for someone to progress into a middle earning role on £40-45k when they will earn more staying in a lower paid role and being able to claim overtime payments (and work less hours with less responsibility). No wonder the economy is stagnant and so many people are apathetic with no career ambitions – there’s no point with the current 40% tax threshold.

Member

You do realise that a 40% tax rate payer only pays that 40% on earnings over approx £42000, They get approx the £10k free of tax and earnings from £10k – £42k are taxed at 20%

For higher rate tax payers you only pay the 45% rate on earnings over £150k. The way you describe it, doesn’t make that clear.

And overtime earnings ARE added to pay for tax calculation purposes so someone earning under £42k with overtime payments that take them over £42k will pay the 40% rate on the amount earnt over £42k.