Taxing times for pensioners An efficient savings plan is more vital than ever, says Holly Thomas

RETIRED people who will suffer higher tax bills in the future, after the Budget unveiled changes to the personal allowances, will need to look around for ways to boost their income. Any pensioner with income between about £10,000 and £24,000 a year will pay more tax in future than they would have done without the recent change to what is already recognised as a complex set of tax rules.

Ros Altmann, director general at Saga, says: “It is the decent middle-income pensioners who worked hard and saved hard to have a bit of extra income in later life, the very people that we should be valuing highly, that will be hit by this move.”

The double whammy is that there was nothing in the Budget last week to help savers. This was a blow for older people trying to live on the income from their savings.

Altmann says: “The very least George Osborne could have done would have been to relax restrictions on individual savings accounts (Isas) that mean older savers cannot put their full annual Isa allowance into cash savings. At the moment only half can be in cash with the rest having to be put into more risky shares or bond investments.

“The Chancellor should allow older savers, who may not be able to afford to gamble their life savings on the stock market, more flexibility to decide what type of savings are best for them, rather than being denied a choice and forced to take risks in their Isa.”

Inflation, as measured by the consumer prices index (CPI), fell to 3.4 per cent in February which should mean lower priced bills for food, gas, electricity and other essentials. This also means basic-rate taxpayers need to find a savings account paying 4.25 per cent to negate the effects of tax and inflation and higher-rate taxpayers need an account paying at least 5.66 per cent.

Tax-efficient savings remain a crucial aspect of retirement planning.

Pension contributions receive tax relief and in the run up to the end of the

‘Find the best rate for a cash Isa’

tax year it has never been more important to use the tax-free allowances offered through Isas.

Some of the highest rates available are on fixed-rate Isas with Halifax paying 4.5 per cent on a five-year fixed rate, 4.35 per cent for four years and 4.25 per cent for three years.

When choosing a cash Isa the key is finding the best rate as some pay as little as 0.1 per cent.

Andrew Hagger at Moneynet.co.uk says that everyone should make sure that they use up their allowances in full before the end of the tax year.

“Even though rates are only about 3 per cent for easy-access accounts, use the allowance to take advantage of tax breaks,” says Hagger.

You can save up to £5,340 in a cash Isa and the same in an equity Isa that invests in shares or funds or you can place the total amount in an equity Isa.

From April 6 the cash Isa limit will rise to £5,640 with the total limit rising to £11,280.