On 3 December, the Chancellor of the Exchequer delivered his final autumn statement before the 7 May 2015 general election. It therefore came with heightened political and media interest. It also came in the wake of his March Budget which transformed the UK retirement market.
In a wide ranging speech, the Chancellor provided updates on growth, deficit, employment and inflation forecasts.
Changes for pensions and retirement
In the wake of his March 2014 Budget, the Chancellor announced some further refinement to the retirement market by changing the way tax is applied on joint annuities upon death.
In summary, the chancellor has announced that widowers or beneficiaries will not pay income tax when they start taking their joint annuity payments if their partner dies. This change is with effect from April 2015. It applies if the primary annuity holder dies before age 75. If the primary holder dies after 75, the remaining pension income will be taxed at the beneficiary’s marginal rate of income or 45% if the money is taken as a lump sum. The change brings annuities in line with previously announced changes to drawdown products.
Commenting on the changes, John Lawson, Head of Retirement Solutions Policy said: “This is good news and puts annuity tax treatment on the same footing as drawdown. This is important because we were concerned people may have made the wrong choice because one option had a different tax treatment. It also means that spouses who inherit when they are younger, when their partner dies before age 75, could save thousands of pounds in tax.”
For savers another change was an update to ISA rules. The amount that can be saved into an ISA each year increases to £15, 240 from April 2015. Also from April 2015, spouses and civil partners will be able to inherit their deceased partner’s ISA fund and retain the ISA tax advantages. This means interest paid on inherited ISAs will now be tax free.
Other headline announcements included:
Forecasts and public finances
GDP growth forecast for 2014 increased to 3%
Inflation forecast for 2014 reduced to 1.5%
Wage growth predicted to be above inflation for next five years
Unemployment forecast to be 5.4% in 2015
Government budget deficit forecast to be £91.3bn this year, reaching a surplus of £4bn in 2018/19
Significant reform of residential stamp duty with effect from 4 December 2014
Income tax free personal allowance to rise to £10,600 next year
Higher rate income tax threshold to rise to £42,385 next year
What is the autumn statement? It is a requirement that the Chancellor of the Exchequer provides two formal financial updates each year. One is the main Budget, normally in March, which traditionally focuses on tax plans, and the second is the Autumn Statement, normally in December, which traditionally provides an update on economic forecasts and spending plans. The difference between the two has become increasingly blurred over time. Even though it is delivered in December, the statement continues to carry the label “autumn”!