ISA's just got a whole lot NISA.... and the UK is finally pension friendly
Fundamental changes to pensions and savings were the main headline grabbers following George Osborne’s latest Budget. The emphasis appeared to be on rewarding both current savers and those who have saved into pension funds over the years.
ISA’s and NISA’s
From 6th April 2014 to 30th June 2014, the ISA allowance will increase from £11,520 to £11,880, with investors still restricted to putting up to a maximum of £5,940 in a cash ISA with any balance in a stocks and shares ISA.
However, from 1st July 2014 all ISA’s will become NISA’s and investors will benefit from additional flexibility. The overall contribution limit will increase to £15,000 in the tax year and investors who have already used their £11,880 allowance will be able to top up their investment to £15,000. Perhaps most importantly, NISA’s will allow complete flexibility to choose how much they invest in cash and/or stocks and shares, as well as allowing investors to transfer between the two.
This last point is important because historically an investor could transfer from a cash ISA to a stocks and shares ISA but not vice versa. Those investors seeking higher income or returns who have transferred from cash to stocks and shares in recent years will now have the opportunity to transfer back.
Changes to Pensions
Five key changes were made in the Budget that many believe will revive interest in pension schemes and provide greater freedom for pension scheme members in the future.
• Flexible Drawdown
Flexible Drawdown is not a new idea. Previously any individual over the age of 55 had the option to draw their pension fund with complete flexibility, provided they could demonstrate that they had a secure pension income of £20,000 per annum already in place. This meant that they retained control of the investments within their pension fund, their investment remained within a tax efficient environment and they could draw from it without restriction.
The Budget reduced the secure pension limit to £12,000, from 27th March 2014, bringing many more people within reach of this flexibility.
• Capped Drawdown
For those who could not demonstrate a secure income of £20,000 (now £12,000), Capped Drawdown allowed them the same control over their pension fund, but with a limit on the amount of income that could be drawn down in any one year. This was expressed as a percentage of ‘GAD’, which was essentially the Government Actuaries Department’s best guess at the maximum amount an annuity contract could provide for any given retirement age. In recent years the maximum capped income has been 120% of the GAD figure, but from 27th March 2014 this increased to 150%. This higher factor will be applied from the next review date of an individual’s capped drawdown contract, so gives increased scope for income.
Historically anyone with total combined pension funds of less than £18,000 could take the whole fund under triviality rules as cash, with the first 25% being free of tax and the balance being taxable. The Budget has increased this limit to £30,000 from 27th March 2014. Please note that in order to do so, if more than one fund is being considered, they must all be taken within a 12 month period of the first pot being taken.
• Small Pots
In addition, previously anyone who had a maximum of two small pension pots of £2,000 or less, regardless of the value of their overall pension funds, could take these pots as a lump sum with the same tax rules as above applying.
The Budget increased the size of these small pots to £10,000 and the maximum number to three, so anyone with a pension fund over £30,000 but with perhaps small pots in previous schemes can now benefit.
• Complete Flexibility post 6/4/2015
Perhaps the biggest surprise was the announcement that from 6th April 2015 flexible and capped drawdown will cease and individuals will have complete flexibility, regardless of secure income or capped limits, to draw on their pension funds, essentially handing over control and responsibility to the individual.
Please bear in mind that the above are merely some of the options available but others may be more suitable to your personal circumstances. We strongly recommend that you contact us to discuss your affairs before taking your pension benefits.
If you would like more information regarding NISAs or would like to discuss your pension and retirement options, please don’t hesitate to contact our Wealth Management specialist, Phil Newton on the details below:
telephone: 01942 292500
Jackson Stephen Wealth Management LLP is an appointed representative of Prolific Financial Services Limited who are authorised and regulated by the Financial Conduct Authority (FCA).