The announcements
ISAs
- Chancellor George Osborne announced that the annual ISA allowance will be increased from £11,520 to £15,000 from 1st July 2014
- This increase will apply to a single ISA, which combines the current Cash ISA and Stocks and Shares ISA allowance
- The Junior ISA limit will also be increased to £4,000 from 1st July 2014
Pensions
- As of April 2015, savers will no longer face the 55 per cent penalty charge for taking out more than a quarter of their retirement pot (a marginal rate of 20 per cent will be charged)
- The minimum income requirement for flexible drawdown will be reduced from £20,000 to £12,000, effective 27 March 2014
- The maximum income limit for capped drawdown will be increased from 120% to 150% of the Government Actuary’s Department calculation of an equivalent annuity, effective 27 March 2014
- Face-to-face advice will be offered to pensioners to help them find the best option from April 2015
The speech
“We are backing a Britain that saves,” said chancellor George Osborne during his speech.
He said: “Twenty four million people in this country have an ISA. And yet millions of them would like to save more than the annual limits of around £5,500 on cash ISAs, and £11,500 on stocks and shares ISAs.”
“Three quarters of those who hit the cash ISA limit are basic rate taxpayers. So we will make ISAs simpler by merging the cash and stocks and shares ISAs to create a single new ISA. We will make them more flexible by allowing savers to transfer all of the ISAs they already have from stocks and shares into cash, or the other way around.”
On annuities, Mr. Osborne said: “Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. No caps. No drawdown limits. Let me be clear: no one will have to buy an annuity.”
He said: “We’re going to introduce a new guarantee, enforced by law, that everyone who retires on these defined contribution pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have.”
What this means for Savers
Overall, these Budget announcements are positive steps forward for the country and they will go some way to help savers and those planning for retirement.
Raising the ISA limit and creating a single ISA can help reform ISAs to make them a viable alternative for retirement savings. The creation of a single ISA means that people can now invest their maximum allowance in cash or stocks and shares. We have been campaigning to raise the ISA allowance to £25,000 for some time now, so we are pleased to see the reforms are moving in the right direction.
Our research shows the UK faces an unprecedented savings crisis as Britons realise too late that they do not have enough in savings and investments. Few people are saving anywhere near enough to enable them to live comfortably in retirement. We refer to this as the ‘The Savings Gap’ and we want to do everything we can to help improve people’s awareness of the issues, their knowledge of savings and investment and their attitudes towards ensuring they have adequate retirement provision.
To help create a nation of savers, True Potential has partnered with the Open University to launch the True Potential Centre for the Public Understanding of Finance (PUFin). The Centre aims to improve public understanding of personal finance. The first free module to help individuals make sound financial decisions will be made available in May of this year.
The Savings Gap is in part due to an advice gap in the market, so we will wait for further details on how the face-to-face advice will operate in practice before we make a judgement.
The surprise announcements on annuities means the Government has legislated to remove all remaining tax restrictions on how pensioners access their pension pots. This increased freedom gives retirees more options and, in all likelihood, more money for retirement.
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