Budget 2014: What does it mean for savers and pensioners?


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The Independent Online

Chancellor George Osborne showed savers a little ankle at the start of his speech. After five years of pitiful returns savers were promised that this was a budget for them. But it took nearly an hour for the Chancellor to back up his earlier tease, when he unveiled possibly the biggest overhaul in pensions and savings in 90 years or at least since Nigel Lawson introduced PEPs back in the 1980s.

Individual Savings accounts limits are not just to rise by inflation as per the norm but will shoot up from their current level of £11.520 to £15,000 in July. What's more, the labyrinthine rules around what proportion of their savings can be held in cash and shares are to be swept away allowing people to hold whatever proportion they want as long as they are within the new higher limit. For those paying tax on their savings at present the 10 p starting rate is to be abolished.

Pensioners with savings are to benefit from the issuing of a new pensioner bond by national savings  which will see them earn an estimated 2.8 per cent for a one year bond and 4 per cent for three years. Bond values will be capped at £10,000 but if the rates are to be believed this will equate to well above market rates of return. In addition the amount of money that can be squirreled away into premium bonds will rise for the first time in a decade from £30,000 to £40,000 then £50,000.

Longer term, though, probably the biggest changes relate to pensions. Although the changes are aimed at the thirteen million Britons who have a defined contribution pension - also called a money purchase scheme - it could be mirrored in other types of pensions. Smaller pension pots will be easier to cash in and those wanting in retirement to take more of their pot as a cash lump sum will be taxed at their marginal rate rather than a punishing 55 per cent as at present. Pension savers wanting to keep their capital invested but draw an income are to see this made easier, removing the need in many cases to have to buy an annuity. With financial advice - or the lack of it - a hot topic the chancellor also announced £20m to be spent on providing free face to face advice.  The Chancellor said he wanted to "Trust savers" and it seems they are doing that.

For those more concerned though about the here and now, income tax personal allowances are to rise to £10,500 from next year.  The higher rate income tax threshold to go up to £41865 from April and by a further 1 per cent next year to £42,285, but this is unlikely to stop the accusation that the Chancellor is providing over 'fiscal drag' where many more people are caught in the higher tax net.

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