Finance: Changes in investment
PUBLISHED: 11:49 24 March 2015 | UPDATED: 11:49 24 March 2015
Paul Flack, director of St Albans financial adviser nhance Independent, gives a guide to the range of new government initiatives available for savers
With interest rates likely to remain at record low levels until the autumn, it is more important than ever for savers to consider all of their investment options. A number of new initiatives were introduced in the last Budget, and these are worth exploring when considering where to invest.
From last June ISAs were reformed into a much simpler product, with a more generous £15,000 limit for cash and shares. There is no longer a limit on how much can be invested in cash, so an investor can split ISA holdings between cash and stocks and shares in whatever proportion they wish.
Stocks and Shares ISAs do not have to be high risk investments. It is possible to invest in a mix that is more conservative, and over the past 12 months the growth on many of these investments may have been better than cash interest rates. However an investment in a Stocks and Shares ISA is not guaranteed – the value of the fund could fall as well as rise. Investors can transfer between Cash ISAs and Stocks and Shares ISAs and we would always recommend that advice is sought from a qualified, regulated independent financial adviser to ensure the risk the investment carries matches the level of risk the individual is comfortable taking.
In the last Budget the government also announced that the 10 per cent starting rate of tax for savings income will be replaced by a zero per cent rate, and the band extended from £2,880 to £5,000 from April 2015. This is good news for anyone with a total income of less than £15,500, as they will not pay any tax on their savings. For those eligible, they should register for tax free savings with their bank or building society.
From January this year a new range of fixed rate market-leading Savings Bonds for people aged 65 and over was made available through National Savings and Investments. The bonds offer interest of 2.8 per cent gross over one year and 4 per cent gross over three years, and these are paid net of tax. The minimum investment is £500 and the maximum £10,000. The bonds are available online, by post or phone. They can be cashed in early subject to a penalty of 90 days interest, and the rates are attractive compared to similar investments.
Pensions saw the most radical shake-up in the Budget, with rules changed to allow pension owners to access their funds in any way they wish from age 55, without the requirement to purchase an annuity. The new rules take effect from April 6, and still allow for 25 per cent of the fund to be taken tax free, with the remainder taxed as income. The ‘death tax’ rules have also been rewritten, allowing pension funds to be passed down to future generations free of tax in many situations.
Careful planning can help pension owners make the most of these ‘freedom and choice’ changes. It is crucial to make sure the pension pot doesn’t run out too early, factoring in realistic investment growth on the fund during retirement, while taking income in the most tax efficient manner possible.