In the middle of March we received that strange annual event the budget, which somehow seems to pass most of us by and we probably couldn’t say what effect it had on our finances well let’s try and pick out a few things which will affect you this time:
There are some radical changes afoot in this area coming whether you’re ready or not and they will affect employers and employees alike. The first of these is auto enrollment, which means by about 2018 all employees will need to be enroled in a pension scheme by their employer. There are opt out options, but none the less we are heading down the compulsory route. You should if you are in any doubt see an independent adviser, because it could mean that in 4 years time 5% of your salary will have to go into a pension and employers will have to contribute 3% of your employees salary… oops there goes the pay rise.
Until now what you could do with your pension when you retired was strictly limited. Now what’s coming is that pensioners will be allowed to use their pension pot as they like. It will of course be taxed. It does mean that pensioners will have the choice of how and when they spend it.
Logically this makes sense in that people are being forced to save and now with those savings they will be able to have some flexibility in retirement. The concern in some quarters is that for the first time in their lives many people will have access to a pot of money the size of which they have never seen before and may well misuse it and it will not last the length of retirement in the way that the current annuity system ensures.
There a couple of nice changes here to help savings. One of these needs to be claimed and to date is one that has been largely ignored by tax payers. Probably because the group of people that it is likely to affect are older pensioners and they may not wish to go through the rigmarole of completing a tax return.
The deal is this, if you have non savings income of less than £10,000 , but you do have some savings income, which is taxed at source normally 20% then some of this will be entitled to a refund, because there was in existence a small band for savers where these were taxed at only 10%… But you had to complete the tax return and for some that’s a lot of work for £200 or so and by the time you’ve paid someone, hardly worth the effort.
In the budget though the chancellor has made this band bigger – up to £5000 – and this will be taxed at 0% potentially giving refunds up to around £500 and this is definitely worth some effort. So if you know some older people with savings income and not much else you could do them a good turn by helping them do their tax return.
As with all budgets there are loads of squiggly details to plough through, which is not for everyone, but they do affect everyone in some way.
One last thought, and a bit of work for you to do, should you happen to have some money to put away check out your ISAs as these may well become more attractive in the future, especially if you can save for the long term.