Maybe Osborne is trying to buy our generation's votes. But a pensions revolution, easier and bigger ISAs, savings on savings? We'll drink to that
For some of our contemporaries, the 1p reduction in beer duty announced in today’s Budget may make them richer by, ooh, £8 a year. For most, though, the news is even better.
Those of us past the childcare years were worried that George Osborne only intended to buy votes from the ‘squeezed middle’. Instead, he’s buying the votes of generation high50, too!
When you turn 50, as you know, even if your income goes down, on average your disposable wealth increases by 25 per cent. With his new rules on ISAs, Osborne is making it easier to squirrel some of that away beyond the taxman’s reach.
What’s more, if all his promises on pensions come to fruition, he’ll make it easier for us to get the best value from our pots when the time comes to cash them in.
Regarding ISAs, the annual amount you can save tax-free has been raised from £11,520 to £15,00. And rather than having to split the maximum sum between equities and cash, you can now hold all in either, and transfer between the two at will.
Previously, you couldn’t convert a lucky share-run from an equity to a cash ISA without paying 20 per cent tax.
Another plus is that peer-to-peer lending, which seems to be working so well, can now be folded into an ISA.
Regarding pensions, George has declared a virtual revolution. Anyone with a ‘defined contribution’ pension – where employee and employer make contributions that are invested – will be able to access all of their pot at the age of 55 without paying the current 55 per cent tax on the ‘excess’.
The first 25 per cent of it will be tax free, as now, and you will only pay the usual rate on the remainder (generally, 20 per cent). With the limit on drawdown raised to £30,000 from £18,000, that means anyone over 55 who cashes in a £100,000 pension pot could take £85,000 as a lump sum, with 25 per cent of it tax free, compared to the current £58,750.
Looking 20 years ahead, we will also benefit from Osborne dropping altogether the requirement on over-75s to buy a pension annuity (the scheme that converts the pot into a guaranteed income for life). Instead, we will be able to leave our pots invested.
Talking of pension investments, Osborne sketched out a new Pensioner Bond with market-leading rates to be available from January to all people over 65. Interest rates will be 2.8 per cent for one-year bonds and four per cent for three-year bonds.
The changes give unprecedented freedom to generation high50 (and retirees) to access and control our pension savings. And in order to ensure we take decisions that are in our long-term interest, the Government will also provide £20 million to develop new free rights to financial guidance.
Osborne, 42, could almost have been one of us as he crowed the good news:
“We will legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots,” he declared. “Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, any time they want. No caps. No drawdown limits.”
We were already putting a half behind the bar for him when he went on to add a chaser on savings tax, abolishing the 10p starting rate for income from saving and extending the band for tax-free income from £2,800 to £5,000.
Of course, his moves have not been without critics. Some have moaned that the Chancellor has sounded the death knell for the annuity industry. (Is that such a bad thing, we wonder?)
And the director general at the Association of Professional Financial Advisers (APFA) has observed that “by [getting] guidance rather than advice, consumers won’t be able to access financial solutions”.
Then there’s the nanny-knows-best brigade, who claim not only that older folk will fritter away their pension pots if they can unlock them but that the Treasury knows this and is looking forward to the VAT receipts.
But to us at high50 we can’t see the problem there: we spend the money, we help the economy and thus we help ourselves. Or we save the money, take a measured income and help ourselves. Win-win? We’ll drink to that.