Budget 2016 update
On 16 March 2016 the Chancellor George Osborne, delivered his 2016 budget. Whilst the speculation of changes to pensions tax relief did not transpire, George Osborne did announce a boost to how people save for retirement or their first home by the introduction of a new 'Lifetime ISA'.
The new 'Lifetime ISA' will take effect from 6 April 2017 and will be available to any adult up to the age of 40. It will allow savers to put away up to £4,000 each year and for every £4 saved, the Government will give an extra £1 up to the age of 50. Therefore, if you save £4,000 each year, the Government will pay an additional £1,000 each year into your funds.
These funds, including the Government bonus, can be withdrawn tax-free from age 60 for general retirement purposes. In addition, the funds can be used to buy a first time home (the value must be less than £450,000 and must be for personal residence and not buy-to-let). Access before age 60, other than for a first time home will result in the loss of the Government bonus (and any interest or growth) plus the levy of a 5% tax charge.
If you already have a Help to Buy ISA, you will be able to transfer those savings into the new 'Lifetime ISA' when it is available, or continue saving into both. You will however, only be able to use the bonus from one to buy a house.
At the same time, the total amount you can save each year into all ISAs will be increased from £15,240 to £20,000.
The good news for active members taking advantage of Pensions plus is that the Government have decided they will not change salary sacrifice schemes designed to benefit pension savings.
It was also announced that the government will restructure the public-service financial guidance providers (the Money Advice Service, The Pensions Advisory Service and Pension Wise), to ensure that customers can access the help they need to make effective financial decisions.
The new structure will direct more funding to the front line and focus more support in areas where it is needed. This will include:
- A new pensions guidance body, to make sure that customers can get all their pensions questions answered in one place, at all stages of their lives; and
- A new, slimmed down money guidance body responsible for identifying gaps in the financial guidance market and commissioning providers to fill these gaps to ensure that customers can access the debt advice and money guidance they need.
In addition, the Government has announced that it promises that the industry will design, fund and launch a pensions dashboard by 2019. The dashboard will be a digital interface where an individual can view all their retirement savings in one place.