State pension and Isa allowances to rise
The basic state pension is to increase by £3 to £113.10 a week from 2014, while the government has confirmed that Isa limits will also rise.
The UK's key benefits and allowances are linked to the September inflation rate, as measured by the Consumer Prices Index, which was revealed to be 2.7%, according to the Office for National Statistics.
This means the state pension will next year be worth £113.10 a week compared to the current £110.15.
ISA contributions will increase to £11,760, from a current £11,520, while Junior Isa contributions will increase to £3,840 from £3,720.
Housing benefit will rise by 2.7%, as per September's inflation rate.
Critics claim that the risers will no little to alleviate the current "cost of living crisis", where soaring food and energy prices along with stagnant wage inflation has put increasing pressure on household finances.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "The Universal Pension Allowance is still £3,600 and falling woefully behind against rising prices.
"This is an important allowance widely used by non-earning spouses, those taking career breaks and children. Had this increased by RPI (retail prices index) inflation it would now be over £5,289."
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).