Pension savers breathed a sigh of relief as fears that Chancellor Philip Hammond would use the Spring Budget to slash pension tax breaks proved unfounded.
However, those who rely on income from dividends from stocks and shares received a new blow: their tax-free allowance is being slashed to £2,000 a year.
Here’s our round up of how this Budget will affect pensioners and those saving for retirement.
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1 Dividend allowance slashed
The tax-free dividend allowance will plummet from £5,000 to just £2,000 a year from April 2018, a big blow for the many pensioners who rely on income from the dividends paid to shareholders.
According to figures from Blick Rothenberg, the reduction in the allowance could cost a basic-rate taxpayer £225 a year, a higher-rate taxpayer £975 and an additional-rate taxpayer £1,143 per year.
The good news, however, is that any investments held within an ISA or pension will not be affected.
2 Pension tax relief unchanged
Under current rules, higher earners get £2 from the government for every £3 saved into a pension scheme, while basic-rate taxpayers get £1 for every £4 saved.
Pensions experts were worried that Hammond would use this Budget to cut these benefits. So his silence on the subject will come as a relief to many – even though some commentators believe changes could be announced later this year.
Jason Hollands, managing director at wealth manager Tilney, said: “It remains to be seen whether further changes to pension allowance are now off the menu for the remainder of this parliament, or if the existing system has merely had a temporary reprieve until the Autumn Budget.”
3 Overseas pension transfers taxed
Transfers of pensions to some overseas schemes will be hit with a 25% tax charge.
Exceptions to the new rule include when the saver concerned is living in the country where the scheme is based, when both the individual and scheme are within the European Economic Area, and when the overseas scheme is provided by the individual’s employer.
The government claims that only a “minority” of transfers will be affected, and that the move will help to crack down on pension scams. But Gary Smith, financial planner at Tilney, is worried that those looking to retire abroad could be caught out.
“This would be an issue for ex-pats who say retire to Spain but transfer into a Qualifying Recognised Overseas Pension Scheme based in Guernsey, as this would incur the 25% tax charge,” he said.
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5 New NS&I savings account rate announced
The new three-year investment bond from NS&I (National Savings & Investments), available from next month, will pay a market-leading rate of 2.2%.
The account will be available for 12 months from April and will be open to savers aged 16 and over who want to save between £100 and £3,000 over the next three years.
It’s good news for hard-pressed retirement savers and pensioners struggling to find decent returns.
6 Money Purchase Annual Allowance cut confirmed
The Money Purchase Annual Allowance (MPAA), which restricts the payments that can be made to a pension when an individual has “flexibly accessed” their benefits, will fall from £10,000 a year to just £4,000 a year from April 6.
The government confirmed this measure yesterday, having announced the proposal in November last year.
Designed to prevent “inappropriate double tax relief”, the move has disappointed pension experts who believe it may catch people out unfairly.
Andrew Tully at equity release provider Retirement Advantage said: “The wide scale pension changes introduced from April 2015 were designed to give people much more freedom over how and when they can withdraw their pension pot. This change is a significant restriction to that freedom.”
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