ISA now NISA!

ISAs: now much NISA

Virtually all the headlines surrounding George Osborne’s recent Budget were about the changes to the pensions rules. Rightly described as the biggest changes to pensions legislation for a hundred years, they will have far-reaching implications for the financial planning of many of our clients.

With all the attention devoted to pensions, it was easy to overlook a radical overhaul of the rules governing Individual Savings Accounts – ISAs as they were formerly known and NISAs (New Individual Savings Accounts) as they’ll now be called.

The changes will come into effect from 1st July. Here’s a concise summary of the new rules the Chancellor introduced:

• This means that if you already have £11,880 in an ISA for the 2014/2015 tax year you will be able to add an additional £3,120 from 1st July
• The division between stocks and shares ISAs and cash ISAs will disappear. Previously you could only hold 50% of the annual ISA allowance in cash: from 1st July all the £15,000 can be held as cash if you so choose
• For the first time ever savers will be able to transfer previous years’ funds from stocks and shares ISAs into cash ISAs. This had previously not been allowed
• Limits on Junior ISAs and Child Trust Funds are also being increased and will rise to £4,000 from 1st July
• The current annual limit on ISAs will be increased from £11,880 (the figure the Chancellor announced in his last Autumn Statement) to £15,000

George Osborne famously said that he wanted to deliver a Budget for “the makers, the do-ers and the savers” and he’s certainly delivered on the savings part of that statement.

He was concerned that people in Britain “borrow too much and save too little” and these changes are an attempt to address that. They’re also a way of rewarding those savers in cash ISAs who have put up with very low interest rates for some time now. So all in all, they’re far reaching changes and we very much welcome them: but what are the practical implications for our clients?

• First of all you can now save almost three times the previous limit in a cash ISA – up from £5,940 to £15,000. For savers whose first concern is security, ISAs now present a very attractive option with a husband and wife being able to save £30,000 a year in a tax-free cash investment
•  ISAs have also become much more flexible. Graham Beale, Chief Executive of Nationwide Building Society, commented: “The impact this change will have on people looking to make the most of their savings will be huge with savers now able to put in £15,000 a year with much greater flexibility.”
• For us, flexibility is the key. ISAs will now play a much greater part in our clients’ financial planning, but it will be more important than ever to make sure that your ISAs are performing well – if you’re invested in a stocks and shares ISA – and that you’re always receiving a competitive rate of interest on savings held in a cash ISA.
• We would expect the increased demand for cash ISAs from July 1st to trigger a wave of competition from the product providers so we will hopefully see some attractive savings rates. Similarly, there will be pressure on the investment companies to make sure they are producing good returns, given that investors can now move all their stocks and shares ISAs into cash holdings. Both of those factors can only be good news for our clients.

As above, we emphatically welcome the changes that the Chancellor has introduced. The limits have been increased, ISAs have been greatly simplified and they will undoubtedly play a greater role in clients’ savings, investments and overall financial planning from now on.

If you have any questions on the proposed changes; if you would like to discuss the ISAs you currently hold – or how NISAs can play a part in your future financial planning – then don’t hesitate to contact us.

*The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

Budget 2014: How the Pensions System changed forever

Following the Budget statement in March, the Government has unveiled plans to completely overhaul the UK’s current pension system.

From April 2015, from age 55, whatever the size of a person’s defined contribution pension pot, the Government proposes that they’ll be able to take it however they want, subject to their marginal rate of income tax in that year. 25% of their pot will remain tax-free and individuals will benefit from increased flexibility. People who continue to want the security of an annuity will be able to purchase one and people who want greater control over their finances can drawdown their pension as they see fit. Those who want to keep their pension invested and drawdown from it over time will be able to do so.

The current system is much less flexible for savers when they come to access their defined contribution pension during their retirement. Savers are currently charged 55% tax if they withdraw the whole pot and three quarters of people currently have little option but to buy an annuity – an insurance product where a fixed sum of money is paid to someone each year, typically for the rest of their life. A ‘capped drawdown’ pension allows you to take income from your pension, but there is a maximum amount you can withdraw each year. With ‘flexible drawdown’ there’s no limit on the amount you can draw from your pot each year, but, using the previous rules you must have a guaranteed income of more than £20k per year in retirement to trigger this option. The one exception granted was for small pension pots, where savers aged 60 and over and with an overall pension saving of less than £18k could take their entire fund in one lump sum.

The Treasury states that the Government has already helped to increase the security of people’s income in retirement by introducing automatic enrolment into workplace pensions and the triple lock guarantee. Ahead of the changes in April 2015, the following further changes have been introduced as of March 27th 2014:

• The amount of overall pension wealth you can take as a lump sum has increased from £18k to £30k. The amount of guaranteed income needed in retirement to access flexible drawdown has reduced from £20k per year to £12k per year.
• The maximum amount you can take out each year from a capped drawdown arrangement has increased from 120% to 150% of an equivalent annuity.
• The size of a small pension pot that you can take as a lump sum, regardless of your total pension wealth, has been increased from £2k to £10k.
• The number of personal pension pots you can take as a lump sum under the small pot rules has increased from two to three.

If you would like to discuss how the new pension rules might influence you and the different ways in which you could now choose to take your pension income, then please do feel free to get in touch, at which point we will be more than happy to discuss your individual situation and how you could best enjoy your retirement!

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Sources: gov.uk

Three national well-being indicators in one report

Consumer Prices, Factory Gate Prices and House Price Growth are all analysed in well-being figures from the Office of National Statistics (ONS). The March 2014 well-being report includes the following insights into the state of the nation’s economic health:

The Consumer Prices Index (CPI)

The CPI grew by 1.7% in the year to February 2014, down from 1.9% in January. The largest contribution to the fall in the rate came from transport (principally motor fuels) with other smaller downward effects from the housing & household services and clothing & footwear sectors. These were partially offset by upward contributions from furniture & household goods and recreation & culture. CPIH grew by 1.6% in the year to February 2014, down from 1.8% in January. RPIJ grew by 2.0%, down from 2.1% in January.

House Price Growth

UK house prices increased by 6.8% in January 2014 compared with a year earlier, up from 5.5% in December 2013. House prices grew by 7.1% in England, 6.9% in Wales, 1.4% in Scotland and 2.7% in Northern Ireland.

House price growth is increasing strongly across some parts of the UK, with prices in London again showing the highest growth. Annual house price increases in England were driven by rises in London (13.2%), the South East (7.1%) and the West Midlands (5.3%).

Excluding London and the South East, UK house prices increased by 3.8% in the 12 months to January 2014.

On a seasonally adjusted basis, average house prices increased by 0.6% between December 2013 and January 2014. In January 2014, prices paid by first-time buyers were 7.6% higher on average than in January 2013. For owner-occupiers (existing owners), prices increased by 6.5% for the same period.

Factory Gate Prices

The output price index for goods produced by UK manufacturers (factory gate prices), rose 0.5% in the year to February, compared with a rise of 0.9% in the year to January. Factory gate prices saw no movement between January and February, compared with a rise of 0.3% between December 2013 and January 2014.

Core factory gate prices, which exclude the more volatile food, beverages, tobacco & petroleum products, rose 1.1% in the year to February, compared with a rise of 1.2% in the year to January. The overall price of materials and fuels bought by UK manufacturers for processing (total input prices), fell 5.7% in the year to February, compared with a fall of 2.9% in the year to January.

Total input prices fell 0.4% between January and February, compared with a fall of 0.9% between December 2013 and January 2014.

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