No further changes to pension tax relief were announced, but from 6 April 2016 there will be a tapered reduction in the Annual Allowance (AA) for most people with income (including pension contributions) above £150,000. At income above £210,000 the £40,000 AA is reduced to the minimum of £10,000.
The Lifetime Allowance for tax-relieved pension savings is cut from £1.25m to £1m from 6 April 2016. Those affected by the changes should consider claiming 'fixed' or 'individual' protection, but these are investment decisions requiring appropriate advice.
Lifetime Individual Savings Accounts (ISAs)
A new type of ISA – the Lifetime ISA – will be introduced from April 2017. It can be opened by anyone aged 18 to 40, and the savers will be able to contribute to the ISA up until the age 50.
The annual limit for saving in the lifetime ISA will be £4,000, but savers will receive a bonus from the Government of 25% of the amount saved. The funds can be used either to buy a first home, or to save for retirement.
Where used to buy a first home, the Government bonus will be paid as long as the account has been open for at least 12 months and the home acquired does not cost more than £450,000. It will be possible to transfer savings from a Help to Buy ISA into the new lifetime ISA, although savers can only use the bonus from one of the ISAs when buying their first home.
Where the lifetime ISA is used to save for retirement, the funds can be withdrawn with the Government bonus from the age of 60. The Government is to consider whether the funds can be withdrawn with the bonus on other specific life events.
The total amount that can be saved in ISAs is increased to £20,000 from 6 April 2017. For 2016/17 the investment limit for an adult ISA remains £15,240 and for a Junior ISA is £4,080.
Help to Save
A new Help to Save scheme will be launched no later than April 2018 to encourage adults in receipt of Universal Credit to save. A Government bonus of 50% will be paid on savings of up to £50 a month paid into a designated Help to Save scheme. The bonus will be paid after two years, with the option to save for a further two years, allowing savers to save up to £2,400 and earn a Government bonus of up to £1,200. There will be no restrictions on how the savings can be used.