Tax relief for passing on pensions, ISAs and annuitiesPaul Sweeting, European Head of Strategy, J.P. Morgan Asset Management

“This is an interesting decision, as it means that pensions could be used to defer tax indefinitely – even across generations. Not too long ago, you had to buy an annuity at retirement to ensure that the tax relief on contributions was recouped by treasury. Even when drawdown was originally introduced, there was a lower limit on the amount that could be taken, for the same reason. Now not only can the withdrawal of pension be deferred indefinitely, it can even be transferred tax free to the next generation. Of course, dying with unused pensions assets is unlikely to be the main problem facing the next generation of pensioners, and it is important to focus on increasing the size of pension pots. Auto-enrolment is a good start, but more needs to be done.”

Income tax (higher rate threshold goes from £41,865 this year to £42,385 next year)

Simon Chinnery, UK Head of DC, J.P. Morgan Asset Management “We would urge savers benefitting from revised tax rates as a result of the Autumn Statement to put the increase in income straight into their pension pot. The best time to increase contributions to savings and pensions is when you receive a pay rise. As such, the announced tax relief can provide an extra £520 a year in savings, which, if invested and assuming a 5% per annum investment return over 20 years*, could amount to over £18,500.”

*assuming income is reinvested

Revised stamp duty Annabel Duncan, Client Adviser, UK DC, J.P. Morgan Asset Management “The sweeping reforms to stamp duty will help young professionals and families climb the property ladder and help ease the financial burdens they have. Many younger workers are more focused on paying down debt and savings to buy a house than saving for their pensions. This is entirely understandable, but this approach puts their pension pots at threat of being under funded when they reach retirement. The chart below shows that spending on housing is disproportionately high for UK adults aged 30 to 49, by far the largest component of their costs. Obviously that declines as a factor of overall spending as we age, if the path to property ownership is eased, it may help alleviate long-term savings pressures for those who recognise the need to save early. As such we hope any savings from a revised stamp duty will mean younger workers can turn their attention to saving into their pensions sooner than they might have been able to previously.”

Source: Family Spending Survey 2012, Office of National Statistics, Data Released December 4th 2012