Dodd Wealthcare Limited, like many financial advisers and their clients, eagerly anticipated this Budget. The usual pre-Budget rumour mill was swirling with predictions of cuts to pensions Annual Allowance, a new flat rate of tax relief on pension investments and even that perennial favourite, that the ability to take tax free cash from pensions may disappear. Well, all of these worries were unfounded, for now anyway.
The Chancellor’s coffers have benefited from better than expected borrowing forecasts, so maybe he felt he didn’t need to cut back on pension’s tax relief in this Budget? However the Chancellor himself did recently refer to pension tax relief as being ‘eye-wateringly expensive’, so this may mean that it could simply be a matter of time before he feels the need to tinker with pensions.
Here is a roundup of some of the points coming out of the budget that do affect personal financial planning:
Public service pensions were reformed in 2015 and, as part of those reforms, an agreement was reached to maintain their value. Valuations of public service pensions are ongoing, and provisional results indicate that changes will need to be made from 2019-20 to make pension benefits more generous for public servants, including teachers, police, armed forces and NHS staff.
The Budget confirms a reduction of the discount rate for calculating employer contributions in unfunded public service pension schemes, to 2.4% plus CPI (in line with established methodology to reflect OBR forecasts for long-term GDP growth). The valuations indicate that there will be additional costs to employers in providing public service pensions over the long-term.
The lifetime allowance for pension savings will increase in line with CPI for 2019-20, rising to £1,055,000.
The adult ISA annual subscription limit for 2019-20 will remain unchanged at £20,000. The annual subscription limit for Junior ISAs for 2019-20 will be uprated in line with CPI to £4,368.
The government will publish a consultation in 2019 on draft regulations for maturing Child Trust Fund accounts. The annual subscription limit for Child Trust Funds for 2019-20 will be uprated in line with CPI to £4,368.
NS&I will allow people other than parents and grandparents to gift Premium Bonds to a child. This, alongside a lower minimum investment of just £25 and the launch of a new app, will make saving with NS&I easier than ever.
The government is taking steps to support the launch of Pensions Dashboards; innovative tools that will for the first time allow an individual to see their pension pots, including their State Pension, in one place. The Budget confirms that the DWP will consult later this year on the detailed design for Pensions Dashboards, and on how an industry-led approach could harness innovation while protecting consumers. DWP will work closely with the pensions industry and financial technology firms. The Budget provides extra funding in 2019-20 to help make this a reality.
Boosting pensions for the self-employed: this winter, DWP will publish a paper setting out the government’s approach to increasing pension participation and savings persistency among the self-employed. This follows the 2017 review of automatic enrolment and will focus on expanding evidence through a programme of targeted interventions and partnerships.
https://www.telegraph.co.uk/politics/2018/10/12/philip-hammond-says-pensions-tax-relief-eye-wateringlyexpensive/ October 2018
https://www.gov.uk/government/publications/budget-2018-documents/budget-2018 (Points 4.5 and 6.12) October 2018
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752202/Budget_2018_red_web.pdf (page 32)