Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
The key takeaways for retirement investors in the Budget
For retirement investors Chancellor Hammond’s big Budget statement was something of a damp squib – and that is no bad thing.
This is probably exactly how ‘Spreadsheet Phil’ wanted it, with all focus on his big decision to increase the personal allowance to £12,500 and the higher-rate income tax threshold to £50,000 from April 2019 – a year earlier than previously planned.
On pensions the big story was what Hammond didn’t say. The build-up to Monday’s statement was dominated by feverish speculation the Treasury was cooking up plans to overhaul pension tax relief.
At one end of the spectrum some suggested a radical overhaul was on the cards, while others expected further incremental change through tweaks to the £40,000 annual allowance.
However, with the Chancellor reporting stronger-than-expected financial numbers – around £13bn better to be precise – he was able to avoid any controversial attacks on savers.
While this stability of sorts is to be welcomed, there was something grimly predictable about the speculation preceding the event.
Once again the Treasury floated the idea it was planning to take the axe to pension tax relief, setting off the inevitable rumour mill around how far it could go and in the process creating the kind of uncertainty that damages people’s confidence in pensions.
LACK OF A LONG-TERM STRATEGY
Ironically, this also costs the Treasury money as savers fearful of a cut to pension tax relief understandably shovel money in ahead of the Budget statement.
Unfortunately the Treasury has yet again failed to set out a long-term strategy for retirement saving incentives and it seems inevitable speculation will persist into the future.
Elsewhere, the Government has hinted the 0.75% automatic enrolment charge cap could be increased next year, pledging to consult ‘to ensure it does not unduly restrict the use of performance fees within default pension schemes’.
While details are thin on the ground at this stage, it may be that the Chancellor feels the existing charge cap potentially blocks
schemes off from investing in the riskier next generation companies he expects to drive growth in the future.
Any shifting of the charge cap will need to ensure it doesn’t reduce value-for-money for automatic enrolment scheme members.
Increases in the lifetime allowance and Junior ISA allowance – to £1,055,000 and £4,368 respectively – for 2019/20 were also confirmed, while the Government is also edging closer to implementing a long-delayed ban on pensions cold-calling.
This ban should help drive home the message that anyone who receives a call out of the blue about their retirement savings should hang up immediately.