Maybe, just maybe, the Government has recognised that a small carrot with a big stick does not work.
With an ageing and longer-living population, the cost of providing retirement benefits is ever increasing and a huge burden for generations to come. The public purse cannot afford to uniquely provide for all its citizens old age. Equally, it will not encourage saving, if there are too many restrictions on the benefits.
Could it therefore be that the much-maligned and ever chastised pension is the new Prodigal Son, returning from its wilderness, with errant features corrected?
Following the previously announced tinkering with contribution levels and limits, we now appear to have some genuine stability and attraction.
After today’s Budget you can be confident of receiving fair income tax relief on a reasonable contribution level and mop up years that you have missed. Have your growth largely capital gains tax free and invest and retire with wise advice. Aspire to achieve a £1.25m pot, though not a penny more. Fund your new ISA to £15k per annum, and any surplus in other tax-efficient structures like offshore bonds. VCTs and EIS remain too if you’d like some risk! Play fair.
When you’re getting on and looking to take benefits and if you’ve built up a fair sum, you can have confidence and take a quarter of your fund tax-free. Then take income and capital from the balance while paying some tax. But make it last and don’t go crying to the Exchequer if it runs out. Remember you’re a grown-up now – that is the other thread running through the speech – the nanny state is being withdrawn.
When you decide to pop off, because the Treasury won’t want your spouse or heirs coming with their begging bowl, a fair tax at your marginal rate will be applied and funds can then be transferred. Gone has the automatic gift to charity, 83% or 55% taxes. It’s all common sense and simplification. Blimey.
Is it time to send the annuity to the knacker’s yard? Not yet. Smaller pots, and those with poorer health may still be best advised to buy an income for life. But nice to have the choice.
All very grown up wouldn’t you say?
Divisional Director of Financial Planning
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