Financial Planning thoughts for new tax year
I am writing this article before the final March budget, so I am hoping nothing much has changed since the comments made in the autumn statement.
In the new tax year we will see the introduction of the new Residential Nil Rate Band. This a new inheritance allowance for your residential home. The allowance will start at £100,000 and will increase each tax year to 2020/21 when the benefit will be £175,000. They state this benefit will then increase by Consumer Price Index from that point onwards. The objective is to reduce the burden of inheritance tax for most families by making it easier to pass on the family home.
As for ISA’s the allowance for savings will increase to £20,000, quite an increase. Also we will see the introduction of the Lifetime ISA. It is a new savings scheme for 18 to 39 year olds to save and buy their first home or for their retirement. It can be either a cash or stocks and shares ISA. You can save up to £4,000 a year in the Lifetime ISA, (still part of the annual ISA allowance). The government will provide a 25% bonus on each year’s savings. But this comes with rules about accessing the money with potential penalties. The government’s view is the Lifetime ISA is either to help you buy a house or save for retirement.
The Treasury are continuing to change pension rules. When I talk to clients they still find it quite confusing as to what they can do with their pensions when they come to retire. The points raised are not just about personal pensions, but also about occupational pensions.
If you want some initial guidance you have the Pension Advisory Service or Pension Wise. You can find both options by searching online. But remember they offer guidance, not advice.
When you want to take action then you may still need to use a financial adviser.
The choice on how your take your income in retirement is a very important decision. Why? Well we are statistically living longer. If you want to understand this point more then I suggest you search the statement - “How long will my pension need to last?” – it will show an Office of National Statistic website – it states that for a male aged 65 today, the average life expectancy is 86, that person also has a 1 in 10 change of reaching 99 years of age. So your pension income may need to look after you for quite a few years. So your retirement income planning needs some serious thought. And being blunt, expert advice.
This is especially the case with occupation pensions, especially if you are considering transferring them. At this time some of the transfer values look really attractive because of the fall in the yields used for calculating pensions. For the vast majority of people, it is not in their interest to transfer because of the inherent guarantees held within these sort of schemes and the benefits which can be passed on to your partners, the decision to transfer should not be taken lightly. It should be an informed decision. You will also need to understand not all financial advisers are qualified to give this advice and it is important you check with them first before acquiring their assistance.
Do your research, but seek out expert independent financial advice.