Call me a cynic if you will, but the recent budget was good for savers, and therefore by definition, older people. Is this because there are only some 14 months left to the next General Election? Or that savers tend to be older people, as young families are intent on paying their mortgages, building their asset base and living their everyday lives? Or because older people are more likely to vote? Or was Chancellor George Osborne just feeling generous?
I suspect there’s an element of truth in all of these statements (other than perhaps the latter), which probably goes some way towards explaining why the Budget made some momentous changes to the often complicated and maligned ISA. After all, statistics show that these tax-free accounts are held by approximately 24 million people of whom an estimated 14 million add new cash each year, and many of these people will be the voters the Tories want to attract or retain.
So what did the Chancellor do to ISAs that will benefit you, our readers? Well, first of all the annual allowance will be raised, and well above the rate of inflation. This is increasing by a whopping 30% from the current level of £11,520 to £15,000. The second major change was in relation to the make up of your ISA. Previously you had a limit to the amount of cash you could invest in this each year of £5,760 with the balance having to be made up of a more risky stocks and shares ISA. This limit has now been removed meaning that you will be able to invest the full £15,000 in cash tax free. Both of these substantial changes come into effect on 01 July this year.
The other main focus of the budget in relation to older people, aimed at those approaching retirement (unfortunately if you are already retired then these changes are too late to benefit you), was in relation to the way that savers can withdraw money from their pensions pot.
With effect from April next year the Chancellor announced revolutionary new rules that mean that anyone over the age of 55 will be able to withdraw cash from their pension funds and be able to use this money as they see fit – it no longer means that they will have to buy an annuity. If you find yourself in this position, then you should almost certainly seek independent financial advice on what the changes will mean to you.
And recognising the fact that returns on savings for pensioners are currently extremely small, because of the low interest rates that we see, January of next year will bring the introduction of ‘Pensioner Bonds’ available to those aged 65 and over. These will be savings accounts paying indicative interest rates of up to 4% a year, well above current returns. Two bonds will be introduced – a one year and a three year bond and individuals will be able to invest a maximum of £10,000 in each bond – £20,000 in total.
We will explore each of these issues in greater detail including what they mean for you, our readers, in future editions of Mature Times.