Autumn Statement 2015: Key Points on Pensions30th November 2015
Unlike this year’s Budget speech and several other recent occasions, Chancellor George Osborne has not announced any major changes in his Autumn Statement, as far as pensions and related tax issues are concerned. The widely anticipated tax relief overhaul has not been discussed and will most likely appear in next spring’s Budget.
That said, there are a few points worth noting.
New State Pension Confirmed at £155.65/week
One thing we have learned is the exact amount of the new “single tier” State Pension, which comes into effect in April 2016 and applies to those eligible for British State Pension and reaching pension age on or after 6 April 2016 (men born after 5 April 1951 and women born after 5 April 1953). It will be £155.65 per week for the 2016-17 tax year.
This is of course the maximum amount and some people will get much less. You need at least 35 qualifying years of National Insurance contributions to be eligible for the full State Pension under the new rules.
Old State Pension Rises £3.35 to £119.30/week
The old State Pension, which still applies to those who have already retired or will reach pension age by 5 April 2016, will rise by £3.35 a week to £119.30, the biggest real increase in the last 15 years. This is thanks to the triple lock – a rule that the State Pension always grows by 2.5 percent, inflation or average earnings, whichever of the three is highest (this time it’s average earnings). George Osborne has confirmed that the triple lock will remain in place as long as the current government stays in office.
Many have criticized the huge gap (now confirmed at £36.35 a week, or about £1,900 a year) between the old and new State Pension . There is much more to the State Pension changes besides the headline amounts and there have been calls for the government to better explain how the changes will affect different groups of people, particularly those approaching retirement. With only four months left, many are still unsure whether they will be better off or worse and are not aware of the options they may have. For example, if you reach pension age before 6 April 2016 and therefore are ineligible for the new, higher State Pension, you have the option to top up your pension, but you must act by 5 April 2017.
Pension Credit Restrictions
Those pensioners who prefer to escape the British winter and spend part of the year overseas may lose access to Pension Credit and Housing Benefit. At the moment you must not leave Britain for more than 13 consecutive weeks in order to remain eligible. In April this will drop to 4 consecutive weeks (it does not apply to exceptional situations, such as medical treatment or a relative’s death, as long as you return to the UK within 26 weeks).
If you are retired, live in the UK and have low income (and low savings), Pension Credit tops you up to a certain guaranteed income. For 2016-17 it will be £155.60 a week for individuals (yes, 5p below the new State Pension) or £237.55 a week for couples.
ISA Allowance Frozen at £15,240
Since 2010 the government has been very generous with the annual ISA allowance, which has increased from £10,200 in 2010-11 to £15,240 in 2015-16. George Osborne has announced a break in this trend, leaving the ISA allowance frozen at £15,240 for the 2016-17 tax year.
Buy-to-Let Stamp Duty
Stamp duty was a big topic in Autumn Statement 2014. This time the Chancellor has come up with an additional 3% stamp duty on second homes and buy-to-let properties, effective from 1 April 2016 (not 6 April). For example, on a £300,000 buy-to-let property you will have to pay £9,000 extra, on top of the existing stamp duty of £5,000 (first £125,000 free, the next £125,000 at 2% and the remaining £50,000 at 5%). Following the unfavourable changes announced earlier this year, it is another step to make buy-to-let a less attractive retirement planning option.
Autumn Statement 2015 in Full
Besides the above mentioned points on pensions and investments, the Autumn Statement covers important trends, forecasts and policy announcements from all areas of the economy and public finance. You can read it in full here.