Will the Autumn Statement revive annuities?
Yesterday's Autumn Statement was the last one before the General Election in May, and although pensions did not have the starring role they did in the Spring Budget, a new detail emerged that may make annuities popular again.
The pension freedoms announced in March gave new opportunities for retirees, and the ability to access their fund has led to a decline in sales of annuities. However, while these new freedoms have been welcomed and a lot of people will benefit from them, annuities continue to be the most appropriate choice for many, especially those for whom income security is important.
At the Conservative Party Conference, the chancellor announced that the 55% death tax on pensions would be abolished, with tax paid by the recipient on withdrawals if the deceased was over the age of 75. If they were younger, the recipient will pay no tax at all on the inherited fund. This rule was not applied to all annuities though, which made them even more unpopular compared to income drawdown.
It was announced in the Autumn Statement that joint life annuities will be passed on to the spouse, tax free, if the policy holder dies before the age of 75. Clarification is still needed regarding what happens if the deceased was over 75, but yesterday's announcement will help to boost the appeal of annuities for anyone concerned about leaving an income for their partner.
The essence of the pension freedoms was providing people with choice around their retirement decisions, and this announcement continues that. It means retirees will be able to decide the best option, rather than feel compelled into drawdown because it would allow them to leave money to their partner. For anyone who would not be comfortable with the risks or management involved with drawdown, this is welcome news.
This Autumn Statement also included a number of announcements that they hope voters will remember at the election:
- The air passenger duty for under-12s is being scrapped, and will be extended to under-16s in 2016
- ISAs will retain their tax-free wrapper when passed to a spouse on death and the allowance will increase to £15,240
- Restrictions have been placed on the banks: currently they can carry losses forward to the next year, which defers tax by lowering or reducing profits. The amount of profits that can be offset by these losses is being restricted to 50%
- A "diverted profits tax" will apply to corporations that make profits in Britain but move them abroad. This tax will be 25%, 5% higher than next year's corporation tax, which could be seen as a move to encourage companies to pay UK tax instead of diverting profits elsewhere
- Fuel duty remains frozen despite falling oil prices
- Stamp duty is being reformed. It will now work in a similar manner to income tax, with the percentage being applied only to the amount of money above the respective thresholds. There will be no duty applied up to £125,000, then 2% between £125,000 and £250,000, 5% to £925,000, 10% to 1.5 million and 12% on anything higher. With this new system, if a house costs £280,000, 2% will be applied to the amount over £125,000 and 5% on the amount over £250,000, which would be a total of £4,000.
Are you pleased with the Autumn Statement, or were you hoping for other announcements? Let us know with a comment below.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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