ISA’s are to become NISA’s

This years budget served up a few surprises. As part of the Chancellors drive to help savers, he announced a significant increase in the amount that can be paid into ISA’s and also reformed it into a ‘simpler’ savings product. Called ‘New ISA’ (NISA) all existing ISAs will become NISA’s!

The change will take place from the 1st July 2014 and from that date the overall annual subscription limit for these accounts will be increased to £15,000 for 2014/15.

For the first time, ISA savers will be able to subscribe this full amount to a cash NISA (currently only 50% of the overall ISA limit can be saved in cash). Investors are able to open one Cash NISA and one Stocks and Shares NISA each tax-year. However, once open, the Cash or Stocks and Shares NISA can be transferred between providers unlimited times.

Under the NISA, investors will also have new rights to transfer their investments from a stocks and shares to a cash account (currently only the opposite is possible). There will be consequential changes to the rules on the investments that can be held in a NISA, so that a wider range of securities (including certain retail bonds with less than five years before maturity) can be invested. In addition, Core Capital Deferred Shares issued by building societies will become eligible to be held in a NISA, Junior ISA or CTF.

Between the 6th April and 1st July 2014, the total amount that can be paid into a Cash ISA is £5,940 and the combined amount paid into Cash and Stocks and Shares ISAs must not exceed £11,880. From 1st July 2014, existing ISAs will automatically become NISAs, with a higher limit and more flexibility. Thereafter an investor can add further money to either their Cash or Stocks and Shares NISA, up to the new £15,000 limit. From the 1st July 2014, any money held in a Stocks and Shares NISA can be transferred to a Cash NISA.

Different transfer rules will apply depending when funds were paid into the Stocks and Shares account. If money is invested between April and July 2014, this sum must be transferred as a whole. Other amounts from previous years may be transferred as a whole or in parts, if the provider permits.

Child trust Fund / Junior ISA
The amount that can be subscribed to a child’s Junior ISA or CTF in 2014/15 will also be increased to £4,000.

Whilst this move is heralded to make saving into an ISA ‘simpler’, there are certain aspects which add complication. For example the fact that you can move money freely between Cash based savings to Stocks and Shares Investment and vice-versa.


We welcome these changes which are positive for savers and investors; the need for advice in terms of movement of money from one type of investment (deposit to equity based investment and vice-versa) makes the need for clear financial advice even more compelling.



Taking your Pension – why the rules needed to change

In the most fundamental change to how people can access their pension in nearly a century, the Chancellor has announced a number of changes to the drawdown, trivial commutation and small pension fund limits. The intention is to provide more people with more flexibility to access their pension savings.

One of the most striking, and well publicised of the proposed changes, is that people will no longer ‘have to’ buy an annuity. For a considerable period of time annuities have been considered to offer poor value. Ironically, annuity rates (one of the measures by which they are judged to offer poor value) is by-and-large beyond the control of annuity providers. Annuity rates are typically driven by economic conditions and conditions over recent years have driven rates down. Quantitative Easing [QE] has been a major contributor to it and QE is not something that was dreamt up by the annuity providers; it’s a policy embarked on by the Bank of England at the behest of HM Government in order to try and get the economy moving.

Another key feature of an annuity is its inflexibility. This is something that has long been derided.

Remembering that the proposed changes are still in a consultation period, we hope that by relaxing the rules this unleashes the innovative potential of the annuity providers leading to products with more flexibility and better value.

We believe that annuities still have their place in retirement planning and the need for focussed in-depth financial advice will be even more essential should the proposed changes come into effect. There will be those people who will take their pension fund, spend the money, and worry about it later. For those who don’t spend it, and prefer to use it to supplement their income, there will be many decisions to be made. For example, where will they invest it; how much, if any, Tax will they pay on the income they receive from it, and will the money be at risk?

However, the main question is “when will the money run out?” Unless you know the date of your own death, this is impossible to answer; you will either end up with money left at the end OR you will run out of money. This is a daunting prospect for most.

Without doubt, whilst the consultation process takes its course, the area of ‘at retirement planning’ has just become even more complicated. We welcome change in this area and hope that the end result is positive for consumers and not just a cynical way of accessing higher amounts of Tax for HM Inland Revenue.

Only time will tell.


Bank Base Rate – the highs and lows of 5 years of a record low

Bank Base Rate – the highs and lows of 5 years of a record low

The Bank of Englands Monetary Policy Committee has announced that the base rate will remain at its present level of 0.5%,  five years after the record low level was first introduced.
Depending on your own personal situation, this could be good news or bad news:

  • it is likely to be regarded as bad news for savers and those who don’t have a mortgage. This demographic of people have been hammered over the last 5 years and many have been forced out of a deposit based savings environment where their capital balance could not fall into one where they could lose some or all of their money in the hope of receiving a higher return overall.
  •  it will be regarded as good news for borrowers; especially those with variable rate mortgages who have no protection against rising rates. After 5 years these borrowers could be forgiven for thinking that rates will never go up and effectively tailoring their lives around a low interest rate environment.

Christopher Malkin, one of the principals and advisers at BLM,commented that whilst interest rates remained at these levels those dependent on income from their savings were being forced to make some difficult decisions about the way in which they structure their investments and that a  good proportion of people may be taking more risk than they would otherwise be prepared to accept in order to try and make ends meet. Investment risk comes in many forms but the current situation underlines the basic principle that an investment strategy should be based around a good risk assessment.

He also commented that the value of the money that people hold in Bank and Building Society savings accounts is being eroded through the insidious effects of inflation, which is generally higher than deposit account rates.

For those with a mix of a mortgage and savings, the situation is more likely to be neutral however, for those with larger mortgages or mortgages that are presently costing the maximum they can afford to pay each month, the latest ‘hold’ on rates is likely to be good news. Stephen Sale, principal and adviser at BLM, commented that borrowers should be careful not to count on interest rates remaining at these levels for much longer. Many economists are expecting rates to remain static through 2014 but begin to rise in 2015 with some predicting a rise from 0.5% to 1% through 2015 and then rising to 2% through 2016.

For those with savings such rises will be welcome but for borrowers who have very little extra in their budget to pay an increased cost, the situation may look more bleak and they should perhaps consider their options.

6th March 2014