At Investors Chronicle we have long been saying that investors should treat the state pension as a bonus and now we have the confirmation that it will be gradually eroded over the years.
State pension age will increase to 68 in the mid-2030s and to 69 in the late 2040s. Increase in basic state pension - basic state pension will rise by £2.95 a week in April 2014. This means an increase from £110.15 a week in 2012-13 to £113.10 a week in 2013-14.
Hymans Robertson has warned that 30-year-olds may need to work until 72 under the "high life expectancy variant", outlined by the Office for National Statistics. However, the actuaries pointed out that 9 per cent of adult life was spent in receipt of state pension life in 1909. It has tripled to 31 per cent today.
On today's annuity rates a single male looking to achieve a pension income of £25,000 at age 65, will need to have saved up a pension pot of more than £400,000.
Expected changes in state pension age*
| Age today | Retire in | At age |
| 59 or less | 2020 | 66 |
| 52 or less | 2028 | 67 |
| 46 or less | 2035 | 68 |
| 36 or less | 2045 | 69 |
| 26 or less | 2055 | 70 |
*These are estimates. Actual dates will be determined by average life expectancy in future years.
However, there was some welcome news for those at or approaching retirement, who will be able to make voluntary national insurance contributions to boost their overall state retirement income.
This will allow those who don't qualify for the full amount of new simplified flat rate pension, being introduced in April 2016, to make contributions that could help them in later life.
Andy James, head of retirement planning at Towry, says: "While this scheme will undoubtedly help those who see the opportunity to add to their retirement pot just prior to retirement itself (or soon after retiring, where their funds are hopefully still sizeable), the devil will undoubtedly be in the detail. This scheme is not set to be introduced until October 2015, and given the various changes that have affected pensions over the past few years, and the fact that we have an election between now and then, don't be surprised if the exact details of implementation are not concluded for some time to come."
New tax bill for multiple trusts
The chancellor has confirmed that he will press ahead with new legislation targeting people with multiple trusts. Someone with four trust arrangements could face a tax bill of over £50,000 every 10 years.
The new legislation looks set to come in from 2015 and could mean anyone who has set up multiple trusts will no longer be able to benefit from a multiple nil rate band. Instead, it seems there will be one nil rate band, to be split between all trusts.
Setting up trusts on different days, each below the £325,000 inheritance tax (IHT) limit has proved a popular wealth planning strategy for many people over the years. Colin Jelley, head of wealth planning at Skandia, says: "This change in legislation means these trusts may now face a tax charge at the 10-year periodic charge point, or, if these trusts already exceed the IHT limit, their tax liability will be even greater."
For example, if someone created four trusts, all below the IHT threshold, then under current legislation, depending on when the trust was set up, the trust would potentially not be liable to a 10 year periodic tax charge. Under the proposed legislation, the nil rate band will be split between the four trusts, and a maximum 6 per cent tax charge will be applied on the excess over the nil rate band on each trust.
| Current legislation | Proposed legislation | ||||
| Trusts | Value | Nil rate band | 10-year tax charge | Nil rate band | 10-year tax charge* |
| 1 | £320,000 | £325,000 | £0 | £81,250 | £14,325 |
| 2 | £320,000 | £325,000 | £0 | £81,250 | £14,325 |
| 3 | £320,000 | £325,000 | £0 | £81,250 | £14,325 |
| 4 | £320,000 | £325,000 | £0 | £81,250 | £14,325 |
| Total | £1,280,000 | £0 | £57,300 | ||
*Uses a maximum 6 per cent tax charge as proposed in the consultation paper.
Using the example above, this new change could result in the trustees being liable to a £57,300 tax charge at the 10-year periodic charge point.
Mr Jelley, says: "This new piece of legislation looks set to have a significant impact on existing trusts, and people may need advice to ensure their existing arrangements are structured in the most tax-efficient way possible. Although the change in legislation means a greater tax liability for some trustees, the benefits of trusts for estate planning purposes remains, and set up in the right way, people can still benefit greatly. With inheritance tax on death set at a substantial rate of 40 per cent, using trusts could still be an attractive option for many families despite the maximum charge of 6 per cent every 10 years."
Property
From April 2015, a capital gains tax charge will be introduced on future gains made by non-residents selling UK residential property. A consultation on how best to introduce this will be published in early 2014. This change brings the UK into line with other countries that tax capital gains on residential property, regardless of where the owner lives.
It is important to bear in mind that this is not just a tax on rich foreign investors but will hit all non-residents including people who retire abroad and keep their UK property to rent it out.
Meanwhile, the amount of time house owners have in which to sell a second home before they must pay capital gains tax has been halved to 18 months.
Under current rules, owners have three years to sell a second home before they are taxed. But under the new rules they will have to 'flip' homes much faster.
Experts warned that the changes could affect those who are going through divorce or have to move for jobs.
The rules will come into force at the beginning of April, meaning that residents may try to sell second homes before that date. Stuart Law, chief executive officer of Assetz, says: "Buy-to-let investors should pay heed to the 'hidden' amendment to the Capital Gains Tax final exemption period which has been reduced from three years to 18 months from next April for those who have lived in any property they now let."
Individual savings accounts (Isas)
The inflation rate rise in the cash Isa allowance for the new tax year (from £5,760 to £5,940) will certainly not be the answer to the savers dilemma - an extra £180 sheltered from tax in a cash Isa would mean an extra tax saving of just 65p a year for basic-rate taxpayers, assuming an interest rate of 1.80 per cent (currently the best easy access Isa rate).
The stocks and shares Isa allowance will increase by £360 to £11,880 in April 2014. The Junior Isa allowance will increase by £120 to £3,840 in April 2014.
WHAT DIDN'T HAPPEN
Speculation over whether the Isa regime would come under attack did not come to fruition. Speculation prior to today had suggested a possible restriction on the tax-free amount that can be withdrawn from pension schemes - but there was nothing on this.
The other disappointment is that there is still no sign of changing the rules to allow the full Isa allowance to be saved into cash Isas. Plus, investors still can't transfer from an equity Isa to cash Isa should they prefer the cash route.
But there was one big omission. George Osborne announced a consultation into allowing Child Trust Fund holdings into Junior Isas in the Budget in March and this closed in August, yet we've still not heard any more on this.
Jason Chapman, managing director at Willis Owen, says: "Families have told us that the current arrangements are complex and unhelpful, and the longer this goes on without being resolved, the more parents and children are being unfairly penalised.
"We want the chancellor to clarify whether money held in Child Trust Funds can be transferred into Junior Isas as soon as possible, to end the uncertainty and let parents get on with saving for their children's future."
