Partner Article

Spending review: what it means for retirement planning

As the dust settles from George Osborne’s autumn statement and spending review, many of us are analysing and digesting what the upcoming changes will mean in real terms for our clients – and what impact this will have on financial management and planning for those looking towards retirement. Here, David Carr, CEO of Gale and Phillipson, gives us his thoughts:

Pensions

“Let’s start with the positives. George Osborne announced another uplift in the State Pension. The increase in the state pension by £3.35 to £119.30 was hailed as the biggest rise in 15 years, and Osborne claimed it would leave pensioners £1,125 a year better off - which is going to come in handy.

“However, it’s worth noting that anyone leaving the country for more than a month would lose their pension credit and housing benefit. This is a cut from 13 weeks - which at least allowed people to be somewhere less challenging in the depths of winter (obviously many pensioners jet to foreign climates over winter months – and who can blame them)?

“For those set to retire after April 6 next year, the new flat rate state pension was announced at £155.65 a week. Osborne pointed out that it’s more than lower earners currently get on means tested benefits. However, a large percentage of people retiring from April will not receive the full £155.65 due to a lengthy transition to the new system.

Property

“For those planning to invest in second homes or buy-to-let properties the autumn statement and spending review certainly won’t be welcomed with open arms. Further to his decision to end tax relief on mortgage interest in the last budget, Mr Osborne has hiked stamp duty for investors. For anyone with plans to invest in a buy-to-let property to generate a retirement income, or a second home, they now must pay a stamp duty rate that’s 3% higher than for those who plan to live in the property. And this 3% can really add up. For a house price of £150,000 the difference will be £4,500 and for a house price of £500,000 the difference will be £15,000. So there are potential huge implications and it is surely a measure which will have an impact on property investments, resulting in an increase in clients looking at other types of investment opportunities.

ISAs

“The ISA allowance for 2016/17 was frozen which is bad news for anyone planning to save through an ISA as part of their retirement planning process (more than 12 million over 50s now hold an ISA) to use the significant savings they’ve built up to help them generate a retirement income tax efficiently. The freeze will disappoint all those using these popular accounts to fund their retirement.

Pension tax relief

“This was widely predicted to be cut in some way. Osborne had already hinted that he would save any changes until after a full consultation on pension taxation concludes - which is likely to mean the Budget next spring.

“Britain’s top earners seeking to make larger one-off pension contributions to make the most of their retirement savings might be wise to consider doing so sooner rather than later. This will enable them to make the most of pension tax relief before the next budget as it’s clear a tax raid is indeed more likely than not to take place in the near future. It can be reasonably expected that the Annual Allowance will be slashed from £40,000 to £10,000 for many higher earners and there will be hefty tax charges for anyone who goes over the threshold.”

Gale and Phillipson is an independent whole-of-market financial planning and investment management firm, offering services to personal, corporate and trustee clients throughout England. Dating back to 1905, Gale and Phillipson has a strong history and enviable reputation for providing innovative, professional and secure financial planning and wealth management solutions.

Services include comprehensive and focused financial planning, a whole-of-market discretionary cash management service, a discretionary multi-asset investment management service and advisory investment management, which are designed to meet both simple and complex client needs.

This was posted in Bdaily's Members' News section by Gale and Phillipson .