The UK Economy News

Here we look at the pension drawdown, ISA and annual allowances.

The Government has proposed to relax restrictions on pension drawdown, and increase the ISA and annual allowances.

Paul Macro, UK Head of DC at Mercer, commented:



                     

"Mercer welcomes relaxation of the restrictions imposed on retirees who are drawing down on their pension fund instead of purchasing an annuity. This will be a great relief to those facing big cuts in their income when preparing for coming reviews. However, with low and, likely still falling, annuity rates this relaxation really does not have the impact that many would have wished for. The reduction in the annual allowance will mean that in future less people will be able to accrue pension funds to levels at which drawdown might be considered sensible.”

"Steps to increase the income tax personal allowance to £9,440 from next April is to be welcomed. However, if this translates into a rise in the threshold at which individuals are auto-enrolled into pension schemes, then fewer people will be enrolled into pension schemes going forward, who might otherwise benefit from employer pension contributions. There is also the risk of a cliff edge impact; with employees in the largest UK companies to be auto-enrolled before April 2013 being treated differently from those that work in mid-sized organisations that are required to enrol later.

Macro added, "Whilst the increase in ISA allowance will also be welcomed by many, reduction in the annual allowance means that fewer will be able to manage their savings plans effectively by saving within an ISA and then moving these funds across to pensions, once they are comfortable that funds can be committed to longer term saving”

"The proposal to allow Stocks and Shares ISA fund managers to invest in alternative stock exchanges, for instance AIM quoted companies, will certainly be welcomed by owners of companies listed on these exchanges, as well as product developers. However, this does potentially increase the risk that small investors take, and caution should be applied before proceeding."