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Red briefcase of the Chancellor of the Exchequer

Posted 9th March 2017

The LV= Spring Budget round-up: what it means for you

On 8th March, the Chancellor of the Exchequer, Phillip Hammond, presented the government's Spring 2017 Budget to parliament. There weren't any huge surprises, but there were some announcements that will impact retirees, consumers and household finances. Kalpana Fitzpatrick (@KalpanaFitz), financial journalist and founder of MummyMoneyMatters.com takes us through what the chancellor put forward.

Pensions

Little was said about pensions in the budget, but the government confirmed in supporting documents that the cut in the Money Purchase Annual Allowance (MPAA) from £10,000 to £4,000, which was originally announced in the Autumn Statement, would be carried through. [1]

The new rules will impact anyone over the age of 55 who has taken advantage of the new pension freedom rules and accessed their savings, restricting the amount of contributions they can make into their defined contribution pension plans. The changes will come into force in April 2017.

For those who’ve already accessed their pensions, but want to continue contributing to their retirement funds, this isn’t good news. It now means those aged 55 and over can't put more than £4,000 into a pension they have already accessed – and it could reduce further contributions to their pension, such as those from employers. It will also prevent many from reinvesting their retirement savings after taking money out of their pension.

The government is also continuing with its clampdown on overseas pensions. People who move their UK pension offshore into a Qualifying Registered Overseas Pension Scheme (QROPS) will have to pay a 25% tax charge on the funds transferred. This measure ensures that transfers to QROPS requested on or after 9 March 2017 will be taxable unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area (EEA) or the QROPS is provided by the individual's employer. Also, any payments made from the QROPS in the first five years after the money is transferred will be subject to tax in the UK. [2]

Social care funding

The chancellor pledged an extra £2 billion into adult social care over the next three years, with £1 billion available in 2017/18, which he said will ‘allow local authorities to act now to commission new care packages’. [3]

The boost was a welcome measure with a much-needed cash injection to help rescue a system that’s under immense pressure with an aging population that the NHS is struggling to cope with. It should also ease the pressure on families facing care costs.

‘Today, there are half a million more people aged over 75 than there were in 2010. And there will be two million more in 10 years’ time,’ the chancellor said.

The cash injection was welcome news, but the system will need a strategic and sustainable long-term approach, the plan for which will be outlined in a government Green Paper later this year.

Education

Education was put in the spotlight as the chancellor set out plans for a £320 million funding package to build 140 new free schools, including grammars, and create 70,000 new places for pupils. [4]

A further £216 million will be used to refurbish existing schools to bring them up to expected standards.

‘Perhaps the single most important thing government can do to support ordinary working families is to invest in the future, so that their children and grandchildren can make the most of the opportunities ahead,’ the chancellor said.

He added that this would also provide an opportunity for families to put children into a good school, regardless of how much money they had or where they lived – an opportunity which parents will welcome.

National Living Wage and Personal Allowance

In a bid to ‘support families with the cost of living’, the national living wage will increase from £7.20 to £7.50 next month for those aged 25 and over, adding over £500 more for a full-time worker, and £1,400 more than when the national living wage was introduced. [5]

The personal allowance – the amount you can earn before you pay tax – will increase from £11,000 to £11,500 and the higher rate threshold will increase from £43,000 to £45,000, except in Scotland. [6]

‘Twenty-nine million people will be better-off, with a typical basic-rate taxpayer paying £1,000 less than in 2010,’ Mr. Hammond said.

The government said it will stick to its commitment to increase the thresholds to £12,500 and £50,000 by 2020/21.

‘We will meet our manifesto commitment to increasing the thresholds to £12,500 and £50,000 respectively by the end of this Parliament,’ the chancellor said. [7]

Returnships

There was some encouraging news for people wanting to return to work after a career break, with a pledge of £5 million to help adults to get back into work. [8]

The funding is great news, especially for parents who take career breaks to raise a family or for carers who take significant time out for caring and want to return to work.

It will help extend return-to-work schemes for all levels of work. In supporting documents, the government stated: ‘The government will work with business groups and public sector organisations to identify how best to increase the number of returnships, supported by £5 million of new funding. Returnships offer people who have taken lengthy career breaks a clear route back to employment.’

Insurance Premium Tax

No additional rise in the Insurance Premium Tax was announced in the Budget, but the increase from 10% to 12% was carried through. The extra cost will come into effect in June 2017, and will impact all insurance policies in the UK.

This was Phillip Hammond’s first Spring Budget, and his last, as the Spring Budget will be scrapped from now on – so stand by for some potentially big announcements in the Autumn Budget later this year.

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