The 2014 Budget was delivered by the Chancellor of the Exchequer – George Osborne – on the 19th March. We’ve had a read through and, on the whole, it’s definitely good news – with savers in particular being rewarded for their thrift.
Let’s get down to details:
Freedom for Retirees
A major announcement this year is that pensioners will no longer need to dip into their savings to buy annuity. This means that once you reach pension age, you’ll be able to withdraw as much as you like – however, this will be considered taxable income. Pensioners will no longer be forced into a bad deal with expensive annuities, nor will they be stuck with a set annual income, giving them more financial freedom. Which is certainly good news.
So what’s annuity? Unfortunately, when you reach retirement age, accessing your pension isn’t as simple as going down to the bank and withdrawing your money. Annuity is essentially a financial product which allows you to convert your pension into a regular income – designed to last you for the rest of your life. Annuity is calculated in numerous ways, including your life expectancy, health and interest rates. Pretty grim? Well, the bad news doesn’t stop there – once your annuity rate’s been decided, you’re stuck on a fixed annual income, which is usually pretty low. Fortunately, as of next year, pensioners will have full access to their retirement fund and no longer need to buy annuity.
It Pays to Be a Saver
George Osborne stated that “the message from this Budget is this: you have earned it, you have saved it, and this Government is on your side”. The Chancellor admitted that, during the economic crisis, savers have been some of the hardest hit with extremely low interest rates and poor returns on investment. Mr. Osborne went on to say that “the biggest weakness of the British economy is that it borrows too much and saves too little”, and that the new rules will reward those who have saved sensibly and encourage those who haven’t to be more frugal and see the benefits of saving.
Savers will be rewarded with an increase in the amount of allowed tax-free savings. Money conscious consumers will now be able to deposit up to £15,000 a year into a tax free Individual Savings Account, known as an ISA. The new ISA (or N-ISA) will merge cash and share-based ISAs, meaning less confusion for consumers over the previous different allowances for cash and shares. Currently, cash savers are only able to invest £5760 into an ISA each year – the increase will mean many more Britons will be able to save money without being hit by hefty tax rates.
From July 2014, savers will also be able to invest up to £40,000 into premium bonds, an increase of £10,000 over the previous £30,000 cap. From 2015 onwards, there are plans for this cap to be raised further to £50,000. The bonds which are offered by National Savings and Investments will also promote saving through greater rewards, with an additional £1 million prize draw being offered each month.
Personal Allowance On the Up
Personal allowance is the name given to the amount someone can earn before they start paying tax. Previously standing at £10,000 per annum, the maximum salary will be raised to £10,500 in April 2015, meaning that more low-income workers will be exempt from paying income tax. There is also good news for those earning more – with changes to income tax bands, anyone earning under £100,000 will benefit from changes brought about by the new Budget. Those falling on the higher side of the £100,000, however, won’t see the benefit – as the increased personal allowance is withdrawn above this income band.
It’s clear that many welcome changes have arrived with this year’s Budget announcement. Time will tell what effect these changes will have on the UK economy – but we’re staying positive.
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