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09 Mar 2016

Pensions and investment predictions ahead of Budget 2016

Ahead of chancellor George Osborne´s Budget 2016, which is due to be announced on 16 March, The Telegraph made some predictions about the changes we can expect to see in regards to pensions and investments.

Following the sweeping pensions reforms introduced last year, this year was going to witness a ‘pensions revolution´, with the possible introduction of ‘pension-ISAs´. But with the Conservative leadership in potential conflict and the Brexit vote taking place in June, these plans now seem to have ben postponed.

However, experts such as Tom MacPhail, head of retirement policy at Hargreaves Lansdown, still think that a major shake-up is on the cards. He told the publication: “I will be amazed if the day after the Budget, higher earners can still enjoy all the tax breaks on pensions available to them today.”

Aside from the most radical proposal for pension change - pension-ISAs - another option is to keep the existing infrastructure but remove the tax relief, so that higher-rate taxpayers can benefit. A flat relief could replace the current rates, enabling basic-rate taxpayers to receive more while those on higher rates would have less. Pensions would still be taxed on withdrawals, apart from the 25% tax-free lump sum.

Another option for the Treasury is to go with the flat system, but opt for a 25% rate to offer significant savings for the public. Again, while tax relief on higher rates may be costly, the principle itself is a fair one - otherwise, savers would be taxed twice on their pension finances.

Finally, a possible hybrid option is to combine a move to a pensions-ISA system with the retaining of basic tax relief - or what some are calling a 20% bonus. This has been suggested as a proposal but has already received a lot of backlash.

The article notes that other announcements to look out for include: a further reduction to the lifetime allowance - which is already due to lower from £1.8 million to £1 million in April; a reduction of the annual allowance on pension contributions; an increase of the personal allowance; and more information about main residence allowance on inheritance tax.

Copyright M2 Bespoke 2016

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