Budget 2015: Lifetime allowance cut

Budget 2015: Lifetime allowance cutOne of the two big pension announcements in the Budget was a cut to the pension lifetime allowance.

The lifetime allowance will be cut from £1.25m to £1m from 6th April 2016.

This move is expected to raise £600m a year for the Treasury.

As a result, more people will face a tax charge on pension pots or benefits above £1m when they take their pension benefits or experience another lifetime allowance test, such as reaching their 75th birthday or transferring pension funds overseas.

George Osborne also confirmed that, from April 2018 onwards, the lifetime allowance will be indexed each year in line with price inflation, as measured by the Consumer Prices Index (CPI).

If the value of your pension pot exceeds the lifetime allowance, there is a tax charge to pay. The level of this tax charge depends on how you take your pension benefits.

The lifetime allowance tax charge is 55% if you take the excess pension pot as a lump sum, or 25% if you take the pension as a regular payment (which is also subject to income tax at your marginal rate).

If you die before taking your pension pot which exceeds the lifetime allowance, the person receiving benefits will have to pay the tax you owe.

The proposed cut to the lifetime allowance in the Budget to £1m might sound like it remains at a very high amount, but improving life expectancy means pension pots often need to last for thirty years or longer. Your £1m pension pot might not last as long as you expect.

When the lifetime allowance has been cut in the past, the government has offered a transitional protection regime to help protect people with existing large pension pots from experiencing a nasty tax surprise.

This has left us with several transitional protection regimes, all with their own rules:

  • primary protection
  • enhanced protection
  • fixed protection
  • fixed protection 2014
  • individual protection 2014

We might now expect to see fixed protection 2015 and individual protection 2015 added to this list, ahead of the lifetime allowance cut due next April.

If you have a larger pension pot or annual benefits from a final salary pension which, when multiplied by a factor of twenty bring you close to the £1m level, you should seek professional advice ahead of next April to ensure you are not paying tax on your pensions unnecessarily.


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Budget 2015 Briefing Note

Budget 2015 Briefing NoteFollowing the Budget at lunchtime today, we have published a short Budget briefing note.

This describes the main Budget announcements as they relate to personal financial planning.

You can download your free copy of this Budget briefing note here:

Budget 2015 Briefing Note

As with every Budget and Autumn Statement, the devil is often in the detail.

As more details come to light, we will add blogs on specific planning topics with our analysis.

If you have any questions about this Budget, please do leave a comment below, call us on 01483 274566, email hello@icfp.co.uk or connect with us on Twitter @InformedChoice.

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Budget 2015: Live Blog

Budget 2015: Live BlogThe Chancellor of the Exchequer George Osborne will present his Budget to Parliament on Wednesday 18th March 2015.

Here at Informed Choice, we have put together a team of Financial Planning experts to present their initial reactions and observations once the Budget is announced.

Our live blog will be regularly updated as new Budget measures are announced.

13:37 That concludes our Budget Live Blog. We will be producing our Budget Briefing Note this afternoon and it will be available to download from our website shortly.

13:30 Some big announcements for savers. Second hand annuity market coming into force from next April, a new fully flexible ISA, and a new Help To Buy ISA (save £200 towards a deposit on your first home, get a £50 top-up), plus a new personal savings allowance taking 95% of savers out of the income tax regime.

13:26 The personal income tax allowance is being raised to £11,000 from 2017/18. The higher rate income tax threshold also raised to £43,300, on route to a higher rate threshold of £50,000 (above inflation rises).

13:23 A revolutionary simplication of taxation with the abolition of the annual tax return. Big news for self-employed as class 2 National Insurance contributions are also due to be abolished in the next parliament.

13:19 £100m to be invested in driverless car technology. The first 20 housing zones are being announced in this Budget. Severn crossing tolls are being reduced from 2018. Lots of support for the North Sea Oil sector, with a package adding up to £1.3bn, offsetting fall oil revenues.

13:06 Some tough words on tax evasion and avoidance, with new criminal offences for tax evasion being introduced in the UK from tomorrow.

13:03 The pension lifetime allowance is being cut, as predicted, from £1.25m to £1m from next year, saving £600m a year. It will be indexed from 2018 onwards.

13:01 The top 1% of taxpayers will pay 27% share of total income tax bill this year!

12:49 Design of the new 12-sided £1 coin, designed by 15 year old David Pearce, is confirmed.

12:47 Osborne confirms the inflation target for the Bank of England Monetary Policy Committee remains 2%, despite falling price inflation due to lower global oil prices.

12:41 OBR has revised up their UK economic growth forecasts to 2.5% this year and 2.3% next year.

12:40 A disorderly Greek exit from the eurozone raised as the biggest threat to the UK economy.

12:35 “No unfunded spending, no irresponsible extra borrowing.” Osborne continues to set the scene for this Budget, making comparisons with five years earlier.

12:34 The Chancellor opens his pre-election Budget with the statement that Britain is walking tall again.

12:29 PMQs is drawing to a close and the Budget is about to begin.

11:21 In possibly the most important news of the day, George Osborne is wearing a grey tie to present the Budget. We repeat, a grey tie!

09:59 Goodbye income tax on savings interest, if a report in The Independent is accurate. They are reporting this morning that Osborne will abolish the tax on savings income for basic rate taxpayers.

18/03/15 07:06 It’s Budget day! Martin has already been on the radio this morning, commenting for Eagle Radio. One of the biggest expected reforms is scrapping the annual paper tax return, which will be replaced by increased use of digital records.

17/03/15 20:21 If the economists are to be believed, Osborne might have some decent ‘wriggle room’ tomorrow. Low inflation as a result of lower oil prices means an annual windfall for the Treasury of around £6bn a year. How will he spend the cash? We’ll find out tomorrow.

17/03/15 15:16 George Osborne has promised no “gimmicks” or “giveaways”, but pre-election Budgets always come with the expectation of buying some votes. The BBC offers a useful roundup of pre-election Budget measures here.

17/03/15 13:49 The Sun has reported that Osborne plans to cut the pension lifetime allowance from £1.25m to £1m in his Budget speech tomorrow. Money raised by cutting the lifetime allowance will be spent on tax giveaways elsewhere, according to the newspaper.

16/03/15 14:48 Martin has recorded our first Budget commentary of the week, speaking down the line to Anthony Zahra, Head of News at Eagle Radio. Martin will be chatting again to Eagle Radio as soon as the Budget has been announced.

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Video: 5 things to do before the end of the tax year

Video: 5 things to do before the end of the tax yearAccording to the latest tax action campaign from Unbiased.co.uk, the UK taxpayer is on track to waste £4.9 billion this year, by paying more tax than required.

74% of taxpayers admit they haven’t done anything to reduce their tax waste in the last year.

With just over three weeks to go until the end of the tax year, here are our five top tips for your end of tax year financial planning.

1 – Pay the maximum amount into your ISA

UK resident and over 18? Excellent. You can invest up to £15,000 into your Individual Savings Account this tax year and benefit from tax-free returns.

Income and capital gains from ISAs are tax-free and don’t need to be disclosed on your tax self-assessment.

Parents can invest up to £4,000 a year in a Junior ISA for each child, so a family of four can shelter £38,000 from tax before 6th April.

Your ISA allowance is a ‘use it or lose it allowance’; once we reach the end of the tax year, it’s gone for good. You get a fresh ISA allowance of £15,240 at the start of the next tax year and the Junior ISA allowance for the next tax year is £4,080.

2 – Give money away to reduce your inheritance tax bill

When you die, your family will pay inheritance tax at 40% on the value of your taxable estate above the nil rate band of £325,000.

You can reduce this inheritance tax bill by giving away money or other assets to your family now.

Gifts made to your spouse or civil partner are free of inheritance tax. It’s possible to gift money to other family members over time in a very tax efficient way.

Gifts made out of normal expenditure are usually exempt from inheritance tax. You can also make exempt gifts of up to £3,000 each year, plus small gifts of £250 to as many different people as you like, and up to £5,000 to your children in the event of your marriage.

3 – Use your annual capital gains tax exemption

If your investments have grown in value, now might be a good time to sell them and use up some of your annual capital gains tax exemption.

You can realise tax-free capital gains of up to £11,000 by the end of the tax year. This is another ‘use it or lose it’ exemption, as any unused amount cannot be carried forward to the next tax year.

If you’re married or have a civil partner, you can transfer assets to them first and then they can use their unused capital gains tax exemption, so a couple can realise capital gains of up to £22,000 by the end of this tax year, even if only one partner owns the investments.

4 – Make the most of your pension allowances

The annual allowance for tax relievable pension contributions is £40,000 for pension input periods ending in this tax year. You get basic rate income tax relief at 20% on your pension contributions, added directly to your pension pot, and higher or additional rate taxpayers can claim extra tax relief through their tax returns.

It’s also possible to carry forward any unused annual allowance from the previous three tax years – 2011/12, 2012/13 and 2013/14. You need to have been a member of a registered pension scheme in the tax year to use this carry forward facility.

You can only have tax relief on pension contributions up to 100% of your earnings in the current tax year. If you have no earnings, you can still receive basic rate tax relief on contributions up to £2,880.

5 – Hang on to your child benefit

Child benefit gets clawed back if you or your partner has taxable income over £50,000. The high income child benefit charge is then applied at 1% of the benefit for every £100 of income over £50,000.

Once your income reaches £60,000, the child benefit is gone. Individual income rather than total household income is the thing to consider.

If your earnings are around the level of £50,000, you can hang onto your child benefit by reducing your adjusted net income by making pension contributions, sacrificing salary in return for tax-free benefits such as childcare vouchers, or even making donations to charities through Gift Aid.


These are just five tips to consider as we approach another end of the tax year.

What steps will you be taking between now and the end of the tax year to stop wasting tax?

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How Chartered are your Chartered Financial Planners?

How Chartered are your Chartered Financial Planners?If you’re looking for a decent financial adviser, you will probably want to choose a firm of Chartered Financial Planners.

The corporate Chartered Financial Planners status is considered by investors to be the ‘gold standard’, held only by firms which demonstrate their professional commitment to raising standards of knowledge, capability and ethical practice.

Informed Choice became the 99th firm of Chartered Financial Planners in December 2007. Today, there are more than 400 firms of Chartered Financial Planners across the UK.

In fact, our founder Nick Bamford was instrumental in making the application for Chartered Financial Planner status in his role as Chairman of the Society of Financial Advisers (SOFA), making this Chartered status very close to our hearts.

It was good to read last week that the Chartered Insurance Institute (CII), which awards these Chartered titles under a Royal Charter, has plans to toughen its rules for firms which qualify to become Chartered Financial Planners.

Under current rules, the CII only requires that firms of Chartered Financial Planners have at least one Chartered Financial Planner (an individual holding the individual Chartered title) on its board of directors.

At least 90% of its customer-facing staff must also be members of the Chartered Insurance Institute.

This creates the situation where larger firms can have one Chartered Financial Planner (and lots of Diploma-qualified advisers) but refer to themselves as ‘Chartered Financial Planners’.

The new tougher requirements mean that, from January 2020, at least 50% of advisers in a firm of Chartered Financial Planners must hold the Chartered Financial Planner title in their own right.

This change is being introduced gradually, with a 25% requirement from July 2017, giving firms a chance to raise their standards and keep up with the new requirements.

Thinking about our own team here at Informed Choice, five of our six advisers already hold the Chartered Financial Planner status, so we comfortably qualify to meet the new tougher standards already.

How Chartered are your Chartered Financial Planners? Is it a badge of honour based on satisfying the criteria by a narrow margin, or is the firm truly populated by individuals who embrace higher professional standards?

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Budget 2015: Cash for annuities

Budget 2015: Cash for annuitiesDespite claims this “will not be a budget of pre-election gimmicks or giveaways”, the first major leak ahead of Wednesday’s Budget offers retirees who have already bought annuities the chance to sell them for a cash payment.

The measure is expected to be introduced from April 2016, allowing existing pensioners the opportunity to benefit from the same pension ‘freedoms’ as those being introduced for new retirees on 6th April this year.

According to reports, it will be possible from April 2016 to cash in an existing annuity – the financial instrument used to convert a pension pot into a guaranteed income for life – without the punitive tax charges currently applied for doing so.

Instead, cash payments in return for annuities will be subject to income tax at marginal rates, based on the amount of cash you withdraw from the subsequent pension pot (and your other taxable income in that tax year).

This is not expected to be a widely adopted option for people who already own annuities.

It would involve selling the guaranteed income from your annuity back to the pension provider, another insurance company or any third-party willing to buy the income stream.

The cash would then be within a pension pot subject to the same freedom and choices which become available to all pension pot owners over age 55 from this April.

The amount you would receive in return for your annuity would depend on your life expectancy, which might have deteriorated or improved since the decision was made to buy an annuity.

Fees and other charges would naturally reduce the amounts paid, and it is reassuring to see the Treasury plans to work with the Financial Conduct Authority (FCA) to ensure consumers have access to appropriate support and advice.

It will be really interesting to see the details of this announcement when it is made and whether a market for second-hand annuity sales can be developed within the space of twelve months.

We believe it is right that existing annuitants gain access to the new pension choices being made available to those who are yet to buy an annuity with their pension pot.

However, buying an annuity with some or all of your pension pot remains the best way to insure against the risk of living too long in retirement.

It is often the most suitable retirement income option for the majority of retirees who need a stable, guaranteed income each month during their retirement.

Choosing to sell your annuity back to the insurance company is not a decision to take lightly. Please seek expert independent financial advice before rushing into any lasting decisions.

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Cash ISAs, fees for retirement advice & ISA fund tips

Cash ISAs, fees for retirement advice & ISA fund tipsIt’s been another busy weekend for press mentions here at Informed Choice.

We have been talking about cash ISA rates, our fees for providing retirement advice, and our ISA fund tips.

Here’s what we had to say this weekend in articles for the FT, the Sunday Times and the Telegraph.

Follow the best route with your pension

The Sunday Times today featured a pensions special, including an article about why investing in help from an adviser is likely to pay off in the long run.

The fee structure for retirement advice from Informed Choice was described in the article along with other leading firms of advisers.

Commenting in the article, I said: “For someone with a pension fund of £250,000, our typical client, these fees represent 0.936% as an initial charge and 0.75% as an ongoing charge.”

It was also explained that we offer a free, no-obligation initial consultation.

You can read the article in full here, although remember you will need a Times subscription. Do speak to us if you have any questions about your retirement planning.

Build a cash reserve

Commenting in FT Weekend, I expressed a preference for using your annual ISA allowance, even though interest rates on these products are “pretty rubbish right now.”

The article explained that ultra-low interest rates have reduced the appeal of cash ISA for savers, but they can still be beneficial for higher rate taxpayers.

You can read the article, this includes a table of the current top paying cash ISA rates, here.

The ISA funds tipped to shine

The Telegraph featured my third set of national press comments this weekend, in an article asking a panel of investment experts to suggest fund ideas for the next five years.

When I provided my comments for this piece, I explained to the journalist that five years is right at the minimum edge of an acceptable term for investing money.

Anyone exposing their money to investment risk for such a short period of time would need to have the right capacity to take risks and be prepared to accept capital losses.

My suggestion in the article was the UK commercial property sector, illustrated by the L&G UK Property fund. Remember, this is not a recommendation to invest in this specific fund; you should seek professional advice before making investment decisions.

You can read the article, and the other fund tips, here.

What else caught your eye in the weekend personal finance press?

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Week in review – Friday 13th March 2015

It’s been another busy week for the team at Informed Choice. Here’s a quick summary of our week in content. How was your week?


Miliband wants to cap pension drawdown chargesMiliband wants to cap pension drawdown charges

There must be an election coming up, because pensions are getting political again. This time, Labour leader Ed Miliband wants to introduce a charge and fees cap on pension drawdown plans. A good idea?

5 Financial Planning lessons from Antifragile5 Financial Planning lessons from Antifragile

After reading Antifragile by Nassim Nicholas Taleb, Martin draws from parallels with Financial Planning and investing.

Pension freedom confusionPension freedom confusion

With less than a month to go before the pension reforms, new research has found widespread confusion and ignorance of the new rules.

How to take your pension potHow to take your pension pot

Nick provides a timely update on the new pension freedom reforms.


There was no new episode of the Informed Choice Podcast this week, as Martin had a nasty bout of man flu. We will be back next week with a Budget Special.


If cats were investors, what sort of investors would they be?

Did you know that Martin was an expert on the investing styles of various cat breeds? Neither did we, until this piece was published in The Telegraph.

Investment risk: five ways to spice up your portfolio

In a slightly more serious article for The Telegraph, Martin talked about oil ETFs as a high risk investment option.

Why downsizing could be the way to retirement security

Following a tweet from the Distribution Technology Annual Conference last week, Martin was asked to contribute to this piece in The Times about why it could make sense to spend your property first and pension last in retirement.

DNA testing will be protection industry ‘game changer’

Commenting for FT Adviser, Martin explains why he thinks DNA testing services such as 23andme have the potential to change the way the insurance industry works.

Rant: The Big Smoke leaves me fuming

As a bit of fun, Martin writes the latest ‘rant’ column for FT Adviser, picking on the soft target of a miserable trip to the City of London.

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How to take your pension pot

How to take your pension potWith just weeks to go until the new freedom and choice in pensions options become available, it is time for an update.

Whilst we wholeheartedly support the new choices and options available there are some important warnings to note;

-There are said to be only two things that are certain in life “death and taxes” and both of these apply to the new choices.

Anything in excess of the much loved 25% tax free cash lump sum is going to be taxable and for most people that might result in more tax dedicated that would be the case if they took their pension pot in stages;

-In respect of death the are two things to note; first, be very careful about spending all your pension pot too quickly. If it runs out before you die what will you live on in the future?

Secondly, death benefits inside a pension pot tax wrapper are highly inheritance tax efficient but as soon as you move your money out of your pension pot tax wrapper and into, for example, a cash account it will form part of your estate for inheritance tax purposes;

-You may not get to enjoy your pension it monies if it falls into the had a of scammers.

Watch out for pretend advisers who have that “guaranteed double digit” investment in Brazilian Teak Forests or Overseas Hotel Developments just for you. The only winner in those investments will be the scammer!

-Watch out also for those less than obvious scammers who are going to spot that you have suddenly come into a lot of money and will have a sales pitch prepared for you. If you are going to take your pension pot only do it if you have real purpose;

-You are going to hear a lot from now on about the Government guidance scheme called Pension Wise (delivered via the Citizens Advice Bureaux and The Pensions Advisory Service.

You should note that this service is not Advice and will not be telling you what you should do, only what choices are available to you.

The Government will try to claim credit for the Pension Wise service but conveniently forget to tell you it is not paid for by them but by a levy on financial services firms.

Our advice is as direct as it is obvious. Forget guidance and go for authorised and regulated financial advice and only ever use an adviser who is on the FCA register.

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Pension freedom confusion

Pension freedom confusionWith less than a month to go before the introduction of new pension freedoms, there appears to be a lot of confusion about the changes.

As a result, savers are unsure about how to best fund their retirement.

The latest Retirement Income Strategies and Expectations (RISE) survey from Franklin Templeton has identified a severe lack of knowledge and a great deal of scepticism around the pension reforms.

Of the 2,000 people surveyed by Franklin Templeton, only 16% believed the pension reforms would enhance their ability to meet their retirement goals.

A staggering 58% felt they do not know enough about the pension reforms to re-evaluate their income options at the point of accessing their pension savings.

The research also found that 68% of people, who have awareness of the pension freedom reforms do not expect to reconsider their retirement income options as a result.

With the pension reforms being rushed through parliament since they were announced in the Budget last March, it is little surprise that awareness is low and confusion is high.

There simply hasn’t been enough time for the government to run a high-profile awareness campaign around the new pension freedoms.

We hope this will still come in due course; it will take more than the recently launched and frankly awful Pension Wise TV adverts to make enough people aware of the pension freedom reforms, and where they can best get the help they need to make the right choices with their pension pots.

Once awareness of the pension reforms is improved, the best thing for people approaching retirement to do is to seek independent financial advice.

Whilst the Pension Wise service can offer some helpful guidance, we expect the outcome from the majority of these 45 minute guidance sessions to be ‘speak to an independent financial adviser’.

There is little in the way of meaningful decision making that can be made about complex retirement income options in the space of a 45 minute guidance session, whether that is face-to-face or over the telephone.

It will be interesting to see how awareness of the new pension freedoms increases once they are introduced on 6th April 2015, or whether confusion will continue to reign supreme.

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