Budget questions answered: Money expert Gabriel Nussbaum on pensions, ISAs and what it means for you
T.The budget has raised a host of questions and concerns, from pension changes to ISA limits and support for families.
Many readers are wondering how the new rules will affect their savings, retirement plans and household finances, and what they should do now to prepare.
In a recent Q&A Independent Readers, I’ve covered your questions about pensions, ISAs, Universal Credit and practical steps you can take to navigate the changes.
Here are some of them and my answers.
Q: For those of us who can’t max out the full £20k anyway, is it important to change the ISA allowance?
Dan1976
A.: Let’s start with what the main changes are:
Rachel Reeves’s statement was that £8k of your ISA should be allocated to a stocks and shares ISA. This is a weird way of saying your cash ISA is capped at £12k. So if you’re someone who traditionally invests £20k in stocks and shares an ISA, you won’t notice this. Similarly, unless you’re getting close to adding £12k to the total of your ISAs, you probably won’t notice this either. Finally, if you are over 65, this change will not apply to you; a warning!
So what are the real effects?
Flexibility: Your choice or ability to choose is being eroded. Let’s say you’ve been topping up your stocks and shares ISA every year, but suddenly want to save towards a home in a cash ISA – your ability to do so has diminished. Let’s say you’ve received a big inheritance or had a great year at work and want to top up your cash ISA; You will now only be able to deposit £12k.
Tax: For those who want to continue saving and top up their £20,000 cash ISA allowance each year, they will now shift at least £8,000 of this into a non-tax-saving account. The higher the rate you pay on savings interest in this budget, the more tax you’re likely to pay on your savings.
Investment: The reason why Rachel Reeves made this decision is to encourage the country to invest. I don’t know about you, but in my opinion, people do not start investing because they are cornered. They start because of education, confidence and encouragement. Actually, I prefer the carrot to the stick.
Q: I have three children – does the removal of the two-child benefit limit mean my family will now receive more support?
BBenB
A.: Simple answer: yes.
This is a “universal” credit, meaning anyone with more than two children will benefit from this announcement.
In practical terms:
- You will receive benefits for each child you have.
- The exact amount depends on your personal circumstances and the calculation of Universal Credit.
- This will start in April 2026.
It’s worth noting a few other changes announced for families on Universal Credit (other conditions apply so you’ll need to check if you qualify):
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
- Help Save – extra 50 per cent bonus on savings (up to £1,200).
- Free school meals – depending on age and income.
- Childcare support – Universal Credit can cover up to 85 per cent.
A lot of people were quite angry about this and wondered where the money for this would come from! But overall, if the government does what it says and lifts almost half a million children out of poverty, I’m all for it.
Q: I pay around £30k into my pension using Salary Sacrifice. How will the announced changes affect me? I also think it will be introduced in 2029; What is the reason for the delay?
9Diamond
A.: Let’s start with the reasons for the delay: who knows. My best guess is that by 2029 there’s a chance this policy will magically disappear as part of an election campaign (but that’s just my guess; I’m still seriously preparing for the implementation of this change).
Now, how it affects your money!
It is important to note that these changes apply Only Salary Sacrifice programsSo before you start stressing, make sure you’re on this type of plan.
The main effect is simple: you’ll pay national insurance for anything you contribute above the first £2k; In your case this means £28k. The rate of national insurance depends on your overall salary; most basic rate taxpayers fall in the 8 percent bracket, and most top rate taxpayers pay 2 percent (taken from your take-home pay).
But there are two other consequences to be aware of, because your employer will also pay national insurance for this (at a higher rate of 15 percent):
- More national insurance on their part could mean fewer benefits they offer, especially if they are currently generous.
- Overall compensation packages may decrease over time as employers try to pass this cost on to employees.
And a question for you:
Does this technically mean that Labor has broken its manifesto promise because you’ll pay more national insurance?
Q: Due to poor money management in my youth, my retirement benefit is smaller than it should be for my age. Will anything in this Budget actually help someone like me?
SammyW
A.: Unfortunately no. This budget wasn’t exactly a budget that would deliver big tax cuts or leave us all with more money.
BUT!
Regardless of what is announced, there’s no better time than now to use these changes as the perfect opportunity to get your finances back in order. Don’t expect the government to help you; do it yourself!
Pension
- The (negative) changes to pensions will not come into force until 2029. Even then, thanks to tax incentives, pensions remain an incredibly powerful tool. You still pay ZERO income tax on the money contributed, so take advantage of that.
- Does your employer offer a matching plan? If so, not using it is literally leaving free money on the table.
Savings and investments
- I hope Reeves proves me wrong and these ISA changes get the country investing! The only positive thing I take away from this is that more people are now aware of what an ISA is – that it truly is a superpower for saving and investing.
- Take the time to learn how to use various ISA accounts. Most people should have a balanced approach in mind. There are tons of free resources online, on social media or on YouTube!
Hope this helps! I will answer weekly questions if I can be of further assistance. Independent‘s Money newsletter and I’d love you to send them there.
Q: I’m thinking of opening my first ISA. With budget changes, should I opt for cash, stocks and shares, or a mix, and how do I decide?
BenJ
A.: First of all, congratulations on opening your first ISA! These are amazing products that not enough people in this country are taking advantage of, so please spread the word.
There are a few things to consider when it comes to choosing which ISA to put your money into.
Actual rules:
- £20k allowance for all your ISAs, including cash, stocks and shares, lifetime and innovative finance (which no one actually uses).
- Lifetime ISA is currently capped at £4k per tax year (apparently under review).
- Cash ISA will be limited to £12k per tax year from April 2027.
How to choose:
Ask yourself the following questions:
- When do you need money? Long term (more than 5 years) → stocks and shares ISAs are starting to make sense. Short term → cash ISAs are your friend thanks to less volatility.
- What do you think about the risk? If the thought of your balance dwindling stresses you out → Cash ISA. If you can handle short-term ups and downs for long-term growth → stocks and shares ISA.
- Do you already have an emergency fund? If no → start here first.
These questions can help you find the ISA that best suits your money. But the important thing to remember is that it’s probably not one or the other, but a balance between both account types. How you divide this balance is up to you; probably based on the questions above.
See here for tips on your emergency savings fund.
Question: When does the change in optional national insurance premiums abroad begin?
A.: In this case, the date is April 6 – but it’s a great question and always worth checking. Here is a link more information.
Note: For everyone (and everything else), please check the dates the changes will be implemented and react accordingly. Don’t assume anything will change right away because most things don’t!
These questions and answers were part of a study. ‘Ask Me Anything‘ hosted by Gabriel Nussbaum on Thursday, November 27 at 13:00 GMT. Some questions and answers in this article have been edited. You can read the entire discussion in the comments section. original article
