Round up of the Budget and what it means for you

Given the General Election is less than two months away, Chancellor of the Exchequer George Osborne was always going to try and curry favour with this Parliament’s final Budget. A number of new tax breaks were definitely welcome although the 59-minute speech was not all good news for savers, even if the stock market liked what it saw, judging by Wednesday’s 1.6% rise in the headline FTSE 100 index.

Implications of the Budget for savers

On the one hand the Government announced a number of initiatives to encourage saving, with a new allowance on interest income, an increase in the annual Individual Savings Account (ISA) and the launch of a new Help-to-Buy ISA.

But on the other, the reduction in the lifetime allowance told pension savers that if their investments performed too well they would face punitive tax charges – something which seemed contrary to the spirit of the pension freedoms which Mr. Osborne has done so much to promote.

Even the plan to permit investors to withdraw cash from their ISA and put it back without compromising their annual contribution limit came with a bit of a sting in the tail, as the money has to be put back in the same tax year if savers are to keep their maximum allowances.

The key items relating to pensions and savings from the Budget were as follows:

1. A reduction in the Lifetime Allowance (LTA) for pension pots from £1.25 million to £1 million from April 2016
2. The Lifetime Allowance will then be index-linked to inflation from April 2018
3. The annual allowance for contributions to Self-Invested Personal Pensions (SIPPs) was left unchanged at £40,000
4. The personal tax allowance will increase to £10,800 for 2016-17 and £11,000 for 2017-18.
5. The higher rate tax threshold will rise by more than inflation from £41,865 to £43,300 by 2017-18
6. Savers will be able to sell their annuities for cash
7. ISA flexibility will be further increased as savers will be able to take money out and then put it back without affecting their annual subscription limit.
8. A new 'Help-to-Buy' ISA will assist first-time buyers. For every £200 contributed the Government will add an extra £50.
9. A new personal savings allowance means the first £1,000 on interest earned will be tax-free for standard rate taxpayers from April 2016. This figure will be £500 for higher-rate payers.

Confirmation that savers would be able to sell their annuities for cash sets the scene for the new pension freedoms which are due to come in to force on 6 April.

With regard to annuities, anyone thinking of selling will have to decide whether they are getting a good deal, as it seems inevitable that the buyer will look to price in both the risk they are taking and a profit margin. If they do think any sale gives them value, they will then have to decide what to do with the money, such as whether and how to invest it. These are big questions and need careful consideration so, as with all of the pension freedoms, just remember 6 April is when the new rules come into force. It is not a deadline and no-one has to act then, especially as it is a Bank Holiday Monday.