From a financial planning perspective this was a budget low on headlines. Having got through the pre-election banter it required a dive into the detail to understand how this might impact our clients.
Pensions
Over the last 18 months pension have been the centre of attention with changes to input, taper, lifetime allowance, tax free cash and death benefits across the defined contribution market. Many of these changes have not yet or only recently become legislation and in a number of cases providers and advisers are still adjusting. Today’s announcement has avoided any more major changes of pension legislation which should be seen as a positive allowing some stability for good financial planning opportunities.
The Chancellor did confirm the Government will continue to consult on the ‘portable pension’ concept where employees have a pot for life taking it from one employment to another. The feedback to date has been overwhelmingly negative as this could create a logistical nightmare for employers, pension providers and payroll professionals.
One area of change Jeremy Hunt did expand on was UK investment within LGPS (local government pension schemes). The data suggests that these schemes hold only 6% of their assets in UK Equities. The Chancellor wants these schemes to publicly disclose their assets and encourage greater investment in the UK small and mid-cap markets. This should also aid with incentivising companies to stay invested in the UK rather than list overseas.
These changes may pose challenges for those running such schemes as they will need to balance the benefits of global diversification against the needs of the UK economy. Whilst pertinent to the overall growth objectives of the UK economy this is out with the scope of the individual members of such schemes that offer defined outcomes.
ISAs and savings
The ISA was designed as a relatively straightforward savings wrapper that protected the individual investor from paying income tax or Capital Gains Tax on assets invested within that wrapper.
The UK (or British) ISA is the latest complication on top of the ‘help to buy’ and ‘lifetime’ ISAs. Today’s announcement is the ‘UK ISA’ would provide an additional allowance of £5,000 per annum provided that it is invested in UK equites. The detail of this remains open to a consultation.
The concept is not dissimilar to that in the LPGS pension scheme in that it encourages investment into the UK economy. However, this change is a little more difficult to envisage as it will directly impact the concept of diversification and the risk implications of an individuals ISA.
The British Savings Bond has also been announced to be launched next month. This is a new NS&I guaranteed fixed rate cash investment over a term of three years.
Mitigate fiscal drag
Over the last two years we have spent a lot of time discussing ‘fiscal drag’ and the reality remains that this is still a significant factor for individuals. The increase in interest rates, market returns and wage inflation coupled with static or reducing tax allowances will pull a number of unsuspecting people into paying more tax and specifically the need to complete a self-assessment tax return.
The key take away is to undertake pro-active financial planning on a regular and ongoing basis to use the reliefs and allowances that are available to mitigate fiscal drag.
Watch our Spring Budget Analysis Webinar to hear what experts from our tax, financial services and accounting teams thought about the changes announced and how they could impact you and your business.
