Future pensions upheaval remains a strong possibility following the Budget, according to a leading chartered financial planner.
Alan Mellor, Managing Director of Cheshire-based Phillip Bates & Co Financial Services, believes Chancellor George Osborne may delayed further changes until the Europe referendum is out of the way.
Alan, whose offices are in Neston, said: “Radical pension changes were threatened leading up to this Budget but with political priorities to the fore, major changes have been put off until a future date, possibly once the Brexit vote is decided.”
Alan says the Chancellor’s announcement of a new Lifetime ISA may hint at future pension reforms.
The Lifetime ISA is the biggest change affecting family finances and will be introduced from April 2017. Savers aged between 18 and 40 can save up to £4,000 a year and receive a Government bonus of 25% – up to £1,000 a year up to the age of 50 provided they keep the money in the ISA until they are 60 or use it before then to purchase a first home.
Alan said: “This measure will prove popular for those saving to buy a house and the ability to borrow from this fund will be attractive to many. The worry is that both of these features detract from the reason we save into pensions – for retirement.
“There will be widespread concern if this announcement is part of a longer term strategy around pensions. The 25% bonus only equates to tax relief at 20% and it would also take away the principle of a pension being deferred income and tax similarly deferred until later.
“The move would be attractive to the Chancellor because it would bring in a huge tax take today of £6-10billion rather than waiting 20-30 years for a tax take.”
Alan highlighted a small number of other key announcements in the Budget including:
- The reduction in Capital Gains Tax to 10% for basic rate taxpayers and 20% for higher rate payers. The previous higher rate will still apply to the sale of residential property that is not your main home;
- The regular ISA will increase to £20,000 from April 2017, reinforcing its importance as a planning tool for all savers;
- Around 600,000 small businesses to be exempt from business rates – saving them on average £6,000 a year. A further 250,000 will pay reduced rate from April 2017;
- Corporation tax to be cut to 17% by 2020 providing a further boost to small businesses.
Alan concluded: “The Budget should provide a timely boost to small business owners, but there remain questions as to whether the Chancellor will be able to meet his long-term financial targets for the UK economy.”