Chancellor Rachel Reeves has announced her Budget, although the rumblings around the disappearing ‘black hole’ and the role of the OBR continue. Here, Robert Cochran, retirement expert at Scottish Widows explains the key takeaways relating to saving for your future:
What’s up with tax free cash?
Robert Cochran: “Just like last year’s budget, this year there was a lot of speculation about potential changes to the amount of tax free cash that can be taken from pensions, but the good news is nothing has changed here. You can still take 25% of your pension fund tax free up to the maximum of £268,275.”
And what about state pension?
Robert says: “The triple lock has kicked in and State Pension is set to grow at 4.8%, meaning that from April, those receiving the full new State Pension will see their weekly pension rise to £241.30 per week, an annual increase of over £570 per year to just over £12,500 per year. Now the Chancellor announced an extension to the freezing of tax bands up until 2031, that will be a 10 year freeze, meaning that more people will be paying tax and many more will be paying higher rate taxes. There was an appeasement for those who just receive basic or new State Pension, in that they will not be expected to do tax returns.”
Oh, and what was that about salary sacrifice schemes?
Robert says: “When it comes to your workplace pension, there were some pretty big changes announced for salary exchange (also known as salary sacrifice) schemes. These schemes benefit from National Insurance savings and there is now a cap on the amount of contributions that are free from National Insurance, at £2,000. This won’t come into effect until 2029, to give employers time to work out how they’re going to accommodate all the changes. Not all pension schemes are set up on a salary exchange basis, but for those that are, they will be more expensive for both employers and employees. Arrangements can remain in place or change, but it’s worth remembering that tax relief on pension contributions will still exist in exactly the same way it currently does and salary exchange schemes provide immediate tax savings, meaning higher and additional rate taxpayers do not have to claim their tax relief above the basic rate.”
How about my savings?
Robert says: “When it comes to ISAs, it’s been confirmed that the full £20,000 allowance will remain, but £8,000 of this will now be designated exclusively for investment purposes.
The Chancellor said that someone who’d invested £1,000 a year since 1999, in an average stocks and shares ISA, would have a fund that was £50,000 higher than one invested in cash. So from April 2027, the annual amount you can save into a cash ISA, is capped at £12,000, to encourage more people to become investors rather than just cash savers. However, for those over 65 years old, they will retain the full cash annual allowance of £20,000.”
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