Budget 19 March 2014 : What was in it for you?

Budget 19 March 2014

This year’s Budget was aimed at Britain’s “makers, doers and savers” and there were certainly a few bombshells in what has been called the best-guarded Red Book in years.

The Chancellor announced tax changes affecting defined contribution pension arrangements, which look to scrap compulsory annuity purchase altogether and allow savers unlimited access to their pension pots. The finer details of this change will no doubt appear over the coming months. Essentially, it provides retirees with more choice but making the right one will undoubtedly require advice.

Assessing the new opportunity, experts have tipped a buy­ to-let boom as people increasingly see rental property as a viable source of retirement income through to a flourishing multi-asset fund sector. ‘Lifestyle’ funds, a common default strategy for those buying an annuity, have had their suitability called into question. ‘Lifestyle’ approaches gradually reduce risk through their asset allocation as savers move from the accumulation phase {building up your retirement pot) into that
of decumulation (income drawdown).

But if savers are more inclined to withdraw larger lump sums earlier, no longer fearful of hefty tax penalties, alternative strategies might be more suitable, such as using a multi-asset vehicle or entrusting your portfolio to a risk-targeted model portfolio designed to generate income, for example.

There are many investment options to research and significant tax implications that must be understood. The funds industry may see this as an opportunity for product development, aimed at would-be annuitants.

In few other Budget speeches has the importance of financial advice been so explicit, with Osborne promising that “everyone who retires on these defined contribution pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have.”

Under closer scrutiny that will more resemble government guidance than “advice” and will be paid for by fees, rather than “free” but it highlights the importance of a helping hand to guide you through the saving and retirement maze.

A more flexible ISA regime, Junior ISA threshold lifted to £4,000 peer-to-peer loans included in the ISA allowance will all further boost UK personal savings. But as always with investing, a solid understanding of the inherent risks is necessary to make the most of the new landscape.

Like the advent of a new year, the Chancellor’s budget typically prompts thoughts of making sure our financial plans are still on track. For most people, the budget usually results in a few minor tweaks. The changes announced in this year’s budget mean that many of us are likely to need a more thorough review.