How would you describe the new government’s approach to pensions? And is it good news for pension owners?
After many years of negativity and a sense that pensions represent money which is lost, ravaged by fees and under performance, promulgated by various dishonest acts (e.g. Maxwell) as well as punitive treatment at the hands of Gordon Brown, it is refreshing to have pensions in the headlines for the right reasons in the last year or so. If the 'new government' includes George Osborne in the last 5 1/2 years then the new pension freedoms can only be a good thing. Of course with freedom comes the freedom to make mistakes but people need to be willing and able to take advice on the issue. Aside from a few horror stories which will inevitably emerge about freedoms misused, the new government freedoms for pensions in the main is good. Being able to choose how to use one's money saved in pensions either as fixed or variable income or as lump sum withdrawals either taxed or not puts control back in the hands of the investor. And crucially in so doing, putting pensions right in the headlines for good reasons, this is already having the effect of encouraging the public to save into them more. Tax efficiency combined with the new flexibility makes them a superb vehicle for saving for retirement. Hats off to George.
How would you describe the new government’s approach to savings and investments? And is it good news for savers and investors?
Increasing ISA allowances, creating more flexibility in terms of switching between cash and stock and shares ISAs, allowing transfer between spouses, tidying up the way children save and are saved for, a couple of attractive National Savings and Investments products, even opening up flexibility within pensions for them to be used as investment products too, are all good initiatives for the savings and investment market. Of course the biggest bugbear of savers is the continuing spectacularly low bank base rate feeding through into deposit rates, but that is the product of far wider issues.
When it comes to pensions, savings and investments, which of the government’s new and/or upcoming polices are likely to have the biggest impact?
In the upcoming small number of years the alleged flat rate state pension which is turning into something far from flat rate is likely to cause consternation amongst those affected. In the long term when the flat rate does finally become the norm, it will make the system more open and understandable and arguably more fair.
Can you identify any recent changes and/or policies that have gone under the radar but are still worth noting?
The imminent changes to the way dividend income is taxed is going to hit entrepreneurs hard. It is well-publicised that the workforce is becoming more entrepreneurial with more self-employed workers than ever. It is a feature of the post-credit crunch era that people who have lost their jobs and/or who are approaching retirement, set up small businesses. Payment by dividend allows these individuals to remunerate themselves when there are profits and not when there are none. George Osborne has stated that he has introduced a higher rate of dividend tax (albeit with a quasi-£5000 allowance) to prevent business owners from avoiding National Insurance contributions. It is however going to stunt risk-taking entrepreneurship and hence also stunt the rewards which can be reaped by the economy, workforce and HMRC. Why take the risk of setting up a new business when profits will be punitively taxed? I believe this is a mistake which as yet has gone largely unnoticed. If the economy begins to stall the massively important small-business private sector will come into focus as will this foolish initiative.
In terms of pensions, savings and investments, what significant changes can we expect before the next general election?
It would appear that limiting tax relief on pensions is on the agenda. George Osborne has talked about moving more towards the ISA model for pensions even, where tax relief is no longer granted at the front end but tax-free income at the back end is. This would be an enormous change which would resonate through the generations particularly hurting the current younger generations who would be denied that tax relief. I think this would reverse all the good work in encouraging people to save into retirement plans.
Are there any government websites in relation to pensions, savings and investments that can offer more information?
The money advice service https://www.moneyadviceservice.org is always good, with comparison tables and a general unbiased educational feel. Likewise www.gov.uk is a mine of information on all aspects of life both financial and other.
28 August 2015
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