Equity Release Advice

What does the budget mean for the over 60s?

What does the budget mean for the over 60s?

Although the headlines around the budget, like most other headlines, have been dominated by the connection with the Coronavirus, there's actually a whole lot more to it. With that in mind, here is a quick summary of the key points for the over 60s.

Interest rates were cut from 0.75% to 0.25% (and have since been cut again to 0.1%)

For clarity, this was a decision taken by the Monetary Policy Committee of the Bank of England rather than part of the budget presented by Chancellor Rishi Sunak, but the announcement of the initial cut was made on the same day and has clear financial implications, so it seems reasonable to include it here.

On the one hand, you could say that the decision to cut interest rates was a kick in the teeth for savers. On the other hand, interest rates have been so low for so long that it's hard to see many people keeping cash deposits for anything other than practical reasons (e.g. to have cash-at-hand), so it could be argued that, in that sense, its real-world impact will be minimal.

In principle, it should, however, make life at least somewhat easier for any older people who are still carrying any sort of debt, including mortgage debt. The rate change should feed through to products which track the base rate according to the schedule set out in their terms. It's yet to be seen how long it will take to feed through into fixed-rate products.

This could take quite some time as nobody knows what is going to happen to interest rates going forward. Both the initial and subsequent cuts were made in response to the economic impact of the Coronavirus so, in principle, if the Coronavirus is contained quickly, rates could go straight back up again. If it's not, then in principle, they could be brought down to zero or the UK could even go into negative interest-rate territory.

Anyone either with debt or thinking about taking on debt, for example remortgaging or equity release, might want to take a “watch this space” approach and see what the market does.

Inflation could become an issue

The current combination of even lower interest rates, the Coronavirus and Brexit could potentially weaken the Pound on the international markets and hence increase the effective cost of importing goods. This could create an issue for some businesses (and therefore the people who worked for them). It could also have an impact on consumers in general, especially for people whose incomes did not keep pace with an increase in the cost of living (at least in the short term).

On the other hand, a weak Pound and higher inflation might not be entirely bad news for older people, especially not if coupled with lower interest rates. If inflation increases property prices and interest rates stay low, then older people might have a great opportunity to tap into the value of their property (for example through equity release) at a very attractive cost.

Changes to pensions and related tax

Both the older basic state pension will be going up by 3.9% in April. This means that the former will rise from £129.20 to £134.25 per week and the latter from £168.60 to about £175.20 per week. This was already announced but is being included for completeness.

At the other end of the scale, the government has promised to change how higher-earners are taxed. In short, at present, tax relief on pensions is restricted once a person's annual income exceeds £150,000, however, the income cap includes the value of pensions as well as salary. The government intends to change this so that the cap becomes £200,000 and hence only has an impact on those earning £150,000 or more.

Your property may be repossessed if you do not keep up repayments on your mortgage

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