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Pensions and ISA's

Some of the highlights

George Osborne surprised just about everyone today with some very substantial changes to the pension and Isa regime.

Let’s start with Isas. The current annual limit is £11,520, only £5,760 of which can be saved into a cash Isa. At the moment, you can never transfer money from a stocks and shares Isa to a cash Isa.

The chancellor is now increasing the overall limit to £15,000.

This is an exciting move. It will now be easier to build a sizeable Isa savings pot.

Lump sum withdrawals from pensions will become more flexible

I’m pleased that the rules on withdrawing money from pension pots are set to become more flexible .

Currently, you can withdraw 25% of your pension pot as a tax-free lump sum when you start to take a pension income. If you want to take a larger lump sum, you currently have to pay 55% tax on the excess above the 25% band.

Under the new plan, you’ll only have to pay your marginal income tax rate on the excess. For many people, that will only be 20%.

Changes to income drawdown coming later this month

Changes to income drawdown will come in later this month.

Income drawdown is the traditional alternative to annuities and it provides some extra flexibility.

Under the new rules, if you can demonstrate that you have a £12,000 annual income from other pension sources, you’ll be able to take out as much money as you like from your pot via drawdown. This is known as flexible drawdown.

And even if you don’t have that £12,000 income, the amount you can withdraw each year will be increased. The drawdown limit will rise from 120% of a typical annuity income to 150% of a typical annuity.

This will in our opinion make a massive diffrence to people making a decion at retirement as to how to take their pension income.