Posts

The Lifetime ISA

Announced in the March 2016 Budget the Lifetime ISA (LISA) can be opened by savers between 18 and 40. Up to £4,000 a year can be saved up to age 50. A 25% government top up will be added to a maximum of £1,000 a year. The money saved can go towards a first home or saved until age 60 to help to fund retirement. Contributions sit within the £20,000 ISA limit for 2016/17.

The government bonus of 25% is lost if withdrawals are made before age 60 other than to buy a first home.

The LISA is a useful addition to the investment world although pensions can still have advantages of upfront tax relief and, in some cases, employer contributions.

Budget – March 2015

In what might be his last ever Budget, George Osborne delivered little of immediate benefit for investors.

The new flexibility in drawing ‘money purchase’ pension benefits comes into force on 6th April but this budget announced a further reduction in the Lifetime Allowance from £1,250,000 to £1,000,000 in April 2016. A new transitional protection will be introduced for those with pension savings already over the reduced £1,000,000 allowance.

It has been proposed to allow annuitants to sell their annuities from 2016/17. This will be subject to consultation but it is difficult to imagine a market which gives existing annuitants a fair market price for giving up their right to a guaranteed lifetime income. We shall see.

Flexibility to dip in and out of Cash ISAs without it counting to your annual ISA allowance will be introduced in the autumn but this flexibility does not extend to Stocks and Shares ISAs. The proposed ‘Help to Buy ISA’ will help first time buyers by adding a maximum of £3,000 to their savings but I can’t help thinking that this will be taken into account by a corresponding increase in property asking prices. 

Budget – March 2014

Perhaps George Osborne had been reading my previous blogs. This budget presented the best news for investors for a generation.

ISAs will become New ISAs but I am not convinced that the term NISA will catch on. The annual investment allowance will increase to £15,000 but the even better news is the flexibility on investments held. Gone is the ridiculous complexity of the amount that goes into a Cash ISA or a Share ISA. At last what we have all been clamouring for is happening. A single ISA in which you can hold cash or shares in any proportion and in which you can swap between cash and shares and vice versa at any time.

It is over a quarter of a century since PEPs were introduced and since then we have also seen TESSAs, Share ISAs and Cash ISAs. At last the politicians have introduced a simple tax exempt account that everyone can understand.

It was the simplification and flexibility of accessing pension funds that caught the headlines. My previous blog explained that annuities are not compulsory and this budget put a further nail in their coffin. The principle will be that individuals can access their pension pots in full or in stages as it suits them. The final detail is subject to consultation but overall – great news all round!

Annuities – Time for Reform

The FSCP also finds that “annuities are increasingly complex and may not offer good value for money”. For many people this is not really news but still far too many individuals buy an annuity from their pension provider without taking independent advice.

Who in their right mind would buy a product which must last a lifetime and cannot be changed without taking a huge amount of care? Comparison websites are criticised for being confusing, having a lack of clarity about charges and not describing the additional protection that consumers buying with advice would get over those buying without advice.

The FSCP recommends that consumers have access to full, fee based, regulated, whole of market advice and recognises that for those with smaller pension pots this can appear an expensive service.

We agree wholly with these conclusions and would also emphasise that this advice should also cover a full appraisal of alternative methods of drawing pension income including income drawdown. Annuities are no longer compulsory and individuals must fully explore all income options before making irrevocable decisions that will have a lifetime effect on their wealth.

Beware Pension Cash Unlocking Scams

“Receive up to 50% of your pension fund before age 55”. Have you seen the website offering this opportunity. If it sounds too good to be true it is because it is too good to be true. The Pensions Regulator, the FSA, HMRC and the Personal Finance Society have all issued warnings about these schemes. Unfortunately setting up a website promotion is all too easy to do and if the scheme is ruled to be illegal individuals could be left with no retirement savings or a high tax exchange for an unauthorised access of their pension. Many offerings are from unregulated people leaving victims with no recourse for their losses. Remember to always seek advice from a UK based FSA regulated independent financial adviser. If in doubt check their credentials with the FSA who publish a register of all regulated companies and individuals on their website.