It's a slight u-turn for pensioners after last year's generous Budget revealed greater flexibility for accessing retirement cash. Chancellor George Osborne has now cut the lifetime allowance for pensions which seems to go against all the positive measures unveiled over the past year.
But there was good news that up to 5 million existing pensioners can swap their annuity for cash.
The lifetime allowance (LTA) – the amount people can save tax-free into pensions – has been further reduced from £1.25 million to £1 million.
Since being introduced in 2006 the limit has been cut several times, from £1.5 million in April last year and £1.8 million in 2011.
Nigel Green, chief executive of financial advice firm deVere, says the move could encourage savers to move their British pensions out of the UK and into an HM Revenue & Customs-recognised QROPS, an overseas pension in a secure, low-tax jurisdiction.
‘When the pension pot is outside the UK it will be exempt from the LTA limit – even if the pension pot increases beyond £1 million over time. This is significant as the LTA could be cut further in the future.
‘Similarly, those who transfer their pensions into a QROPS will typically benefit from being able to access flexible high-return investments and have their pensions paid in the currency of their choice, amongst other advantages,’ he says.
James McLeod, head of pensions at AES International, says it’s not yet clear how the change will impact those in defined benefit schemes.
‘It may be the government needs to offer express protection measures for those who have been in such schemes for some time,’ he adds.
More positively the Chancellor has confirmed that from April 2016 people who already have an annuity will be able to sell it for a cash lump sum and pay their usual rate of tax, instead of 55%.
Nick Breton, head of Direct Line for Business, suggests people could put the cash into a buy to let investment.
‘For some retirees it could be a good way to diversify their investments and income,’ he says.
There is also more flexibility for those who have Individual Savings Accounts (ISAs). Savers will be able to withdraw and replace money in the same tax year without losing the tax advantage.
According to Fidelity Personal Investing savers dip into their ISAs three times a year on average so the flexibility looks like a big win.
The government is introducing a Help to Buy: ISA scheme for first-time buyers. People will be able to save up to £200 a month and the government will boost it by 25%, up to a maximum of £3,000.
There's lots of support being given to regions such as promoting chemicals and technology sectors in the North and news of a new rail franchise in the South West.
Two of the day’s FTSE 350 gainers are science and technology development firms Allied Minds (ALM), up 4.6% to 662p, and RM (RM.), which gains 4.8% to 147p. Both are likely beneficiaries of a government commitment to invest £400 million in ‘cutting edge scientific infrastructure’ over the next five years.
There's a big focus on the oil industry - the table shows the situation for North Sea operators prior to changes in the Autumn Statement and today's Budget:
There's relief for operators of older fields. Petroleum revenue tax – a field-based tax on profits which applies to fields given development consent before March 1993 –is reduced from 50% to 35%.
The supplementary charge is cut from 30% to 20% - having been cut in the Autumn Statement from 32% - though the reduction only takes us back to where we were before the surprise hike in the March 2011 budget.
Funding of £20 million is put up for seismic surveys to boost offshore exploration – though given the cost of acquiring seismic data this doesn't look particularly material to us. Also a new simpler investment allowance is to be introduced – though there's no detail.
The sector reaction is broadly negative after perking up in the minutes after Osborne revealed the changes and suggests more was expected. Among those active in the North Sea, Enquest (ENQ) falls 0.7% to 34.19p and Premier Oil (PMO) slips 4.05% to 135.2p. Though both rose sharply yesterday in anticipation of tax cuts.
Banks remain on the naughty step but it appears that Chancellor George Osborne believes it’s time the life support machine is removed. Following huge profits posted by all but one bank during this year’s reporting season year he wants the nation’s lenders to cough up more cash to help repair the public finances.
The bank levy will be raised to 0.21% from 0.156% from April to raise an additional £900 million a year. The country's largest lenders barely moved on the news.
In another move he has banned banks from deducting their compensation payments for the mis-selling of products, such as payment protection insurance (PPI), from their corporation tax.
Osborne also plans to sell £9 billion worth of the tax-payers’ shares in Lloyds Banking (LLOY), which barely reacted on the news remaining flat at 79.4p.
He will also raise £13 billion from selling mortgages rescued from the Northern Rock and Bradford & Bingley bail-outs.
‘The banks got support going into the crisis; now they must support the whole country as we recover from the crisis,’ Osborne said after announcing the new measures.
It’s good news for pub companies as the Chancellor cuts beer duty for the third year in a row. There will be another penny off a pint, a 2% cut for spirits and most ciders and a freeze on wine duty. JD Wetherspoon (JDW) is up 1.6% to 787.5p following the announcement.
Osborne's message was very clear: 'Britain is walking tall again'. More people have jobs in Britain than ever before. Unemployment is set to fall to 5.3% this year.