By George, was it as bad as I thought it might be? No... and there's even the odd bit to be optimistic about.
Pensions
Well it's all change again in the world of pensions with the third set of changes in as many months, on top of simplification introduced back in April 2006. The anti-forestalling measures for 2009/10 and 2010/11 introduced previously remain unchanged, however, complexity reigns and taking advice should be the default position.
For those high earners building pension funds, it's worth noting there will be consultation over the next few months to review the changes due in April 2011. The pensions industry has been fairly vocal with regards to 'doing away' with higher rate relief for those earning over £130,000. The likelihood is that the current annual allowance will be reduced from £255,000 to between £30,000 to £45,000.
For some clients this is an opportunity to keep contributing to pensions, where previously we anticipated this year was 'going to be it' in terms of new payments. If you are a director/shareholder of a business and in a position to make large employer contributions (up to £255,000 - deductible expense), I strongly advise you to explore your options in the coming months, to either rule in or rule out a large contribution while you have the chance.
The detail is to be confirmed but if you are caught by the £130,000 earnings limit keep your ears and eyes open.
Changes are afoot for those who are about to take benefits, this could prove to be quite interesting, although again, the devil is going to be in the detail and we don't know what that is yet. Up until yesterday when you reached the age of 75, you must have made a decision about taking your pension benefits - whether that was buying an annuity, or taking income via alternatively secured pension income. Under the new proposals this compulsion is being reviewed and new rules will come into effect 6 April 2011. Please note there is no compulsion to purchase an annuity, however you have to take income at the age of 75 and this is the most common option for doing that.
As an interim measure, those who reach the age of 75 on or after 22 June 2010 will not have to buy an annuity or otherwise secure a pension income until the age of 77. However, they will still have to take their lump sum and become entitled to income drawdown immediately before their 75th birthday.
Until the changes come into effect, a tax charge of 35% will be imposed on lump sum death benefits paid, if an individual dies with income drawdown on or after 22 June 2010 aged 75 or over. This will replace the charges applicable on lump sum death benefits in alternatively secured pensions, which previously could amount to 82% in total, although you would be lucky to get a provider to pay them in the first place as it's an unauthorised payment. This means the option of a lump sum payment is now possible, this certainly broadens out who can receive the benefits now up to age 75 , which has got to be a good thing!
For individuals with money purchase arrangements that reach the age of 75 on or after 22 June 2010, and have not yet purchased an annuity, the strict minimum and maximum limits associated with alternatively secured pension will now apply from their 77th birthday and not their 75th birthday.
The details are to be announced shortly when the consultation finishes.
The good news as far as the state pension is concerned, is this will now increase in line with earnings. This is also seen as a way of reducing the impact of means testing on savings.
ISAs
The ISA allowance will be increased in line with RPI from April 2011, rounded to the nearest £120. This is not massively exciting but every little bit helps. More important is that you try and use your allowance consistently.
Long term, stocks and shares have got to be the better bet, whereas cash is good for liquidity. The best rate for cash ISA's at the moment is Santander.
Child Trust Funds (CTFs)
Further government contributions are to cease from August 2010 for those aged seven and new CTFs will cease from Jan 2011. For those with existing accounts the legislation around contributions remains the same. Generally, we like Children's Mutual for CTFs.
Capital Gain Tax (CGT)
After much speculation the rate will go up from from 18% to 28% for higher rate tax payers. Thankfully everyone gets to keep their annual allowance of £10,100. The rate change came into effect last night at midnight and there are no retrospective charges for those who have made disposals between 6 April to 22 June.
Great news for Entrepreneurs' relief, where the limit goes from £2 million to £5 million.
EIS & VCT
From our perspective there is nothing in the Budget that will change our stance on EIS & VCTs, we were concerned that the emergency Budget would upset the opportunity for clients to invest in lower risk VCTs and EISs, again thankfully there doesn't appear to be anything that will change this moving forward. Moreover, these types of investments can, in the right circumstances, be an alternative vehicle to pensions for those caught by anti forestalling.
Anne McClean is a senior Financial Adviser at Nightingale Associates. The views given in this blog are personal to the author. If you would like to discuss the contents of this post with Anne you can call her on 020 7353 1597.
M&H LLP trading as Nightingale Associates is authorised and regulated by the Financial Services Authority.
