I’ve sat through a dozen or more budgets. Most – even during the financial crisis – have been exceptional only for their sheer tedium. I didn’t expect anything more exciting from George Osborne this week. I was wrong.
Regardless of how cynical you are, this was a good budget for investors. Regular readers will know that we like individual savings accounts (Isas). They’re more flexible than pensions and less of a tempting target for money-hungry governments. The main benefit pensions have had over them is the relatively low Isa allowance. That’s all changed now.
From July, you’ll be able to put £15,000 a year into an Isa, and you’ll be able to split it between cash and investments as you wish. That’s £30,000 a year between a couple – plenty for most people’s needs.
All good news for savers. But the changes on pensions are even more radical. From April 2015, the government has “removed the effective requirement” to buy an annuity.
Annuities haven’t been compulsory since 2011, but the rules on income drawdown for people with relatively small pots have made it unappealing. Now, not only will drawdown rules be less stringent, you’ll also be able to take out your entire pot at once if you wish.
It’s a smart way to deal with the annuity problem. Everyone has known for years (we’ve banged on about it for long enough) that annuity providers as a whole have been ripping off a near-captive audience. This puts pressure on providers to create and sell long-term savings and income products that are genuinely competitive and attractively priced, rather than mouthing empty platitudes about ‘shopping around’.
Of course, it’s also a crafty way for the government to access people’s pensions. If you do take out your whole pot, you’ll pay tax at your marginal rate (rather than 55%) on the amount over the 25% tax-free lump sum. As Robert Peston noted on the BBC, this is expected to raise “more than £1bn a year by 2018-2019” as people can’t resist taking advantage.
It’s another reason to stick with Isas – governments love to fiddle with pensions and there’s always an ulterior motive. That said, this is a major simplification, which is to be welcomed.
There is just one concern at the back of my mind. No one rings a bell at the top of the market. But I do wonder if this new attack on annuities, just as they are at their least attractive, is another sign that we’ve seen the bottom of the interest-rate cycle.
If that’s the case, the chancellor may have far more to worry about, given the still dire state of Britain’s finances, come the next few budgets.