Tom Selby, senior analyst at AJ Bell, summarises three key reforms that will be introduced through the Bill…and one that won’t:
Money Purchase Annual Allowance cut from £10,000 to £4,000 for the 2017/18 tax year
“The decision to slash the annual allowance for people who have flexibly accessed their retirement pot from £10,000 to £4,000 will be hard to take for savers. The Government cites fears over pensions recycling as the reason for the cut, although policymakers have produced no evidence that this is actually happening to any great extent.
“Those who have already used the pension freedoms since 2015 on the assumption they could still put £10,000 into their retirement pot each year will feel particularly hard done by, while the reduction also jars with the flexible working patterns that will become increasingly common in retirement.
“Those who are affected by this can still save into ISAs, however, where the annual limit remains at £20,000.”
Tax-free dividend allowance cut from £5,000 to £2,000 from April 2018
“Clearly a 60% reduction in the dividend allowance will cause many investors to rethink the make-up of their portfolios from next year. The tax penalties on unwrapped dividend payments above £2,000 will be severe – 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.
“Any investors potentially affected by this should consider shifting their investments into tax wrappers like pensions or ISAs, where investment growth and dividend payments are free of tax.”
New £500 advice allowance introduced
“The advice allowance allows savers to access £500 from their pension savings tax-free up to three times before they reach age 55 in order to pay for regulated financial advice. The measure is one of a series of recommendations from the Financial Advice Market Review, an initiative aimed at improving access to advice following the introduction of the pension freedoms.
“While it is early days, the signs suggest demand for using the allowance is likely to be relatively low.”
Scams clampdown remains out in the cold
“There was some speculation that measures to tackle pension scams, including a ban on cold-calling, could be introduced in the Finance Bill. This always seemed fairly optimistic given the timescales involved and the fact the Government has only committed to protecting savers ‘as soon as Parliamentary time allows’.
“The whole industry now needs to keep the pressure on policymakers to ensure this vital intervention doesn’t get crushed under the debris of the Brexit process.”