George Osborne has announced even more changes in this year’s Budget that will affect pensioners across the UK.
The Chancellor of the Exchequer’s final budget speech before the 2015 general election had a number of announcements following on from last year’s radical pension reforms.
Proposals allowing pensioners to cash in their annuities in order to take advantage of the new freedoms, alongside a cut to inheritance tax. Also announced was a dramatic cut to the Lifetime Allowance of tax free pension savings.
Here’s are the biggest announcements from the 2015 Budget that will affect retirees, starting from the new tax year and into the foreseeable future.
Cashing in your annuity
As the Chancellor exclaimed in his speech, “For many an annuity is the right product, but for some it makes sense to access their annuity now.”
The restrictions on buying and selling existing annuities will be lifted by the government in 2016. This will allow around 5 million pensioners who had previously opted in to an annuity contract – guaranteeing them a retirement income – the ability to sell the income they receive, without unwinding the original contract.
Prior to the announcement, there was a 55% charge on anybody wishing to sell their annuity payments to a willing buyer. From April 2016, this charge will be abolished, with savers only being taxed at their marginal rate.
As Osborne clarified: “People who’ve worked hard and saved hard all their lives should be trusted with their own pension.”
Inheritance tax cuts
As well as extensions to the pension freedoms set to come into place from next year, additional changes surrounding inheritance tax will come into effect in the coming 2015/2016 tax year.
At present, there is a 40% tax to be paid on the inheritance of an estate above the value of £325,000; this can be transferred between married couples up to a value of £650,000.
In an aid to your beneficiaries, an additional £175,000 nil tax band per person on a family home or other main residence has been confirmed. This can again be combined with a spouse up to the value of £350,000, and with the original £650,000 allowance, this means a property up to the value of £1 million can be passed on without a hefty IHT bill.
This is especially valuable for those who were advantageous in the housing boom, and particularly for homeowners in London and the South East.
Lifetime Pension Allowance Slashed
In a move that may come with some detriment from many retirees, the government are to further reduce the Lifetime Allowance from £1.25 million to just £1 million.
Despite saving around £600 million a year, and only affecting less than 4% of those approaching retirement, this is a huge blow to those who have saved for a secure financial future.
The limit was first introduced in 2006, and has already seen reductions over the years: last April saw a reduction from £1.5 million, following a reduction from £1.8 million in 2011. This further reduction has been described as a “slap in the face for those who have worked hard and saved hard” as well as “a dangerous cap on aspiration” by Nigel Green, chief executive of the deVere Group.
The move is set to increase the revenue that can be invested in financial cuts, but will come by penalising public sector workers including doctors, dentists and civil servants, as well as coming as a blow to those who have saved and aspired for an affluent and financially secure retirement.
While there are some major positives for the at-retirement market in this year’s Budget, will the negatives outweigh them and swing voters away from the Conservative party in the upcoming election?
With less than 50 days to go to until the UK casts their vote, only time will tell.
Main image: Gladstone Budget box by HM Treasury @ Flickr