George Osborne declared “Britain is walking tall again” as he delivered his final Budget before the General Election.
[image type=”thumbnail” float=”left” src=”/wp-content/uploads/sites/2/2015/06/george-osborne-2.jpg” alt=”George Osborne” info=”none” info_place=”top” info_trigger=”hover”]
But what economic path has the Chancellor set us on before the nation goes to the polls in a few weeks?
One of Mr Osborne’s headline announcements was to cut the pension lifetime allowance from £1.25 million to £1 million.
“Is the Government encouraging us to save for the future elsewhere?” asks Emma Hall from Clifton Wealth.
[blockquote]“Will the Government bring in another form of Fixed Protection for 2015/16/17 for clients who maybe close to the £1.25 million by that time?”[/blockquote]
Clifton Asset Management Group Financial Planning Director Anthony Carty attacked the move.
[blockquote]“In my opinion this is a retrograde step further disenfranchising company executives and business owners in terms of building their pension wealth. This is at a time when the very same audience needs to be engaged with pensions for their employees due to auto enrolment.”[/blockquote]
[blockquote]“I would have thought it would be more sensible to dispense with the lifetime allowance altogether and simply reduce the annual contribution limit or restrict the level of tax relief on those contributions.”[/blockquote]
The move to cut the allowance, which will be indexed from 2018 and save around £600 million a year, came as the Chancellor revealed reforms to ISAs, giving people the opportunity to take money out and pay it back in again.
By making ISAs more flexible, is the Government making them more attractive in an attempt to encourage us to use them instead of pensions? It would certainly save them a lot in terms of tax relief.
Another well-trumpeted announcement was allowing five million British pensioners to get their hands on their pension pots.
By giving them the ability to sell their annuity income to a third party the money paid can either be taken as a lump sum or put into a drawdown contract for investment.
In both scenarios the tax will be at the individual’s marginal income tax rate.
Emma said this was “great flexibility” for clients but begs the question how would the Government regulate this and how would the underwriting be done on the individual who owned the annuity?
The Chancellor also tackled the problems of first-time buyers trying to get onto the housing market with Save to Buy ISAs.
First-time buyers will get a £50 top-up from the Government for every £200 invested in a Save to Buy ISA.
Will this encourage growth in the property market again? The Government relief is up to a maximum of £3,000 and can only be used to buy properties worth up to £250,000 or £450,000 in London.
The cash incentive from the Government will also only be paid when the purchase goes ahead and therefore no interest can be earned on the £3,000.
[blockquote]“This is heavily dependent on people’s earnings and the banks’ ability to lend. The Budget reports that employment rates are rising but earnings growth has slowed,”[/blockquote]