Page 19 - Budget 2021

instant access rates for new accounts are now from new and challenger banks at around 0.5%. A similar picture
emerges for instant access cash ISAs.
If ultra-low interest rates are a concern to you:

• Make sure you take maximum advantage of your personal savings allowance and, where possible, your starting
rate band.

• Maximise your cash ISAs, which pay interest tax free.

• Regularly check the interest rate on all your deposit accounts. It is especially important to watch accounts with
bonus rates – once the bonus period ends they can look very unattractive. Do not simply wait for the next
statement: if you are only earning 0.001%, you need to know now. Note that the NS&I Income Bonds and
Investment Account now both pay only 0.01%. By a curious twist, the best NS&I offerings are Premium Bonds,
which have a prize fund (tax-free) rate of 1%.

• Be wary of tying your money up in a fixed-term deposit for five or more years simply to achieve an interest rate
above 1.0%. A lot can happen in five years – just think back to 2016...

• Consider investing in UK equity income funds, where yields of 4% and more are widely available. You will lose
capital security, but your initial income would be usefully higher and the dividend allowance currently lets you
receive £2,000 of dividends before paying any dividend tax, regardless of your personal tax rate.

PLANNING POINT

If you have not yet arranged an ISA or invested up to the 2020/21 maximum, think about doing so. If you are
unsure where to invest at present, you can always leave your money on deposit, even in a stocks and shares
ISA. Just don’t expect it to earn much interest.

Drawing your pension

If you are due to start drawing an income from your pension plan, make sure that you take advice about your options.
When the new rules were first introduced the government launched Pension Wise (now part of the Money and
Pensions Service) to help people through the complexities, but this service only offers guidance, not personal advice:
you will still have to make the final decisions. The Pension Wise guidance does not attempt to integrate pension
choices with your other financial planning, e.g. Estate planning.

If you think how long you might live with the cost of a wrong choice, it is clear that getting independent advice is the
route to take.

PLANNING POINT

The changes to the death benefit rules on pensions from 6 April 2015 mean your pension plan could provide
income for future generations, as your beneficiaries will be able to pass the remaining fund to their children and
so on down the line. One consequence is that from an inheritance tax planning viewpoint it can be better to
draw on – and even run down – non-pensions assets in retirement rather than use your pension arrangements
as a source of income. The further five year freeze in the nil rate band has heightened the attraction of pensions
as part of estate planning.

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