Mark Soper, co-founder of RetireEasy.co.uk, said:

Lifetime ISA

‘The new Lifetime ISA appears to be a hugely watered down version of the radical Pension ISA and tax relief reforms that were being talked about before the Budget. However, the new Lifetime ISA does provide an attractive long-term savings plan for a huge swathe of the UK working population and, for basic rate tax payers, is more tax generous than an equivalent Personal Pension plan as 100% of the fund may be withdrawn tax free.

‘However, savers will need to return the bonus element of the fund plus any interest or growth on it to the Government along with a 5% charge if money is withdrawn for any reason other than home purchase or retirement. This may change in future: the Government has said that it will consider allowing savers to keep the full amount in future if funds are withdrawn for anything other than retirement or a home purchase. Savers may also be able to borrow funds against the Isa, much like in the US.

‘RetireEasy worries that this Lifetime ISA may impact on an individual’s decision to join a Workplace Pension plan as the ability to save in both may prove difficult to low earners and younger savers alike. The allure of the ISA’s early access and possible tax free withdrawals may lead to many workers withdrawing from or opting out of their workplace pensions with the associated loss of the employer’s pension contribution. At best, it provides a layer of complexity for an individual to consider before joining a workplace pension plan – something that is counter intuitive to Automatic Enrolment. At worst, this could prove disastrous in the longer term for a healthy retirement plan.’

Cut in salary sacrifice

‘As a relatively uncontroversial means of saving Treasury funds, it is not surprising the Chancellor has targeted employees’ ability to “salary sacrifice”. A favourite of higher paid executives, the practice of salary sacrifice has grown significantly since auto-enrolment. In fact, the Government expressly states it is ‘concerned’ that salary sacrifice schemes have grown by 30% since 2010. The employee asks for a reduction in bonus or salary and the employer pays an equivalent reduction as a pension contribution. The employee gets the top rate of tax relief immediately plus a saving in National Insurance Contribution (NIC) of 1%. However, the real benefit is the saving in employers NIC of 13.8%.

‘How these benefits will be affected is unclear at this point: the Government said it is considering limiting the range of benefits that attract income tax and NICs advantages, but conversely goes on to state that it intends to preserve salary sacrifice for pension contributions in the future. The latter is surely ripe for at least a curtailment.

‘Both employers and employees will lose out, although cutting this incentive will not cause the same storm as the Chancellor’s mooted overhaul of the pensions industry. And its complete removal will save the Treasury approximately £1billion per annum, which is not to be sniffed at.’

Pensions Advice Allowance

‘Allowing people before the age of 55 to withdraw up to £500 tax free from their defined contribution pension to redeem against the cost of financial advice is an admirable addition to the industry, as many pre-retirees baulk at the cost of upfront financial advice. The exact age has yet to be decided, but we believe this should be kept open to anyone between the ages of 50-65, as concern over retirement provision is not limited to those under the age of 55.’

Pensions Dashboard

‘Finally the Government has admitted that many nearing retirement are completely at a loss as to how many private pensions they may have and how much funds they will have to live on in retirement. Although the creation of a Pensions Dashboard will help this, we query whether the pensions industry will be able to work together to initiate such a service by 2019. Also, at the risk of sounding self-promoting, such a free service already exists – RetireEasy.co.uk.’

About RetireEasy.co.uk:

RetireEasy.co.uk is the only free, independent, holistic online tool that gives those in or nearing retirement peace of mind by empowering them to plan for their financial future.
Its online planning service, LifePlan, is a highly interactive, intuitive, flexible and easy-to-use web-based program, which is an entirely safe and secure resource.
RetireEasy.co.uk aids multi-asset financial planning by optimising capital and income, factoring in debt liabilities such as a mortgage, along with a range of assets including property, one or more private retirement plans, investment portfolio and cash.
The business was formed in 2010 by Richard and Naomi Collinson, and Mark Soper.

For more information, please also visit: https://www.retireeasy.co.uk/.