(Sm)All Change

Well, well, what a busy time it’s been! When closing my column for the last issue, I alluded to the forthcoming Budget, expecting – as many did – a run- of-the-mill effort from our Chancellor. In place of the usual tinkering, with a fiscal slap on the wrist for the smokers, drinkers and drivers, as has become the backbone of so many Budgets over the years, Mr. Osborne grasped the thorny subject of those folk with relatively small Pension plans.

Provisions have long been in place for those who have saved towards their retirement, but who haven’t been able (or inclined) to amass very much in their plans. To the great surprise of many, the previous limit – under which we could get access to the cash in a small pension plan (known as ‘trivial commutation’) has nearly doubled, to £30,000. Also, the provisions, under which certain other small pension pots can be taken in cash, will be increased from £2,000 to £10,000 and the number of these additional pots from a non-occupational scheme that can be accessed, has been increased from two to three. The income rules applying to ‘Pension Draw-down’ schemes have also been changed. The Chancellor has also stated that the future of pensions will change hugely, particularly regarding the compulsion to purchase an annuity.

All the funds that have been made accessible by these changes, are still subject to the existing pension rules regarding taxation. The first 25% of the funds are available free of tax, and the remainder is added to the individual’s taxable income, and taxed at the appropriate rate.

As if this wasn’t enough for us to consider, new regulations for the marketing and operation of mortgages have recently come into force, with the upshot that mortgages will become harder to get. This may be a generalisation, but for the greater majority of cases, it will be the case. Mortgage lenders will have to prove that they have taken the appropriate steps to ensure that prospective borrowers are able to afford their mortgage commitments. Whilst the rules are very new, it appears that they will (at least at first) be strict. Loans will be assessed, and therefore limited, by evidence of the borrowers’ expenditure over previous months. Initial observations seem to be that individuals cannot be trusted to alter their expenditure after entering into a mortgage arrangement, and that the ability to afford a housing expense in the past does not mean that they will be allowed to do so in a new arrangement. There was a time when, as long as one could prove to a lender that a previous mortgage or rent commitment was paid regularly, then the lender would be perfectly happy to lend a new mortgage, at the same monthly cost. Such good sense is now not allowed. Maybe I am becoming a little cynical, as the years go by! More than ever, though, professional guidance may mean the difference between getting a mortgage or not.

It appears that this will have the effect of dampening the housing market, but this cooling-off of the economy may well be offset by the flood of newly-freed pension money being pumped into market. Ah well, enough of this, I’m off. Enjoy the recently forecast heatwave, I’ll be back in the blazing Summer.

David Foot


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