March has been an interesting month for macroeconomic policy and, as a result, income investors have some further issues to consider when looking where to invest their money.
In the UK, chancellor of the exchequer George Osborne produced his last Budget statement before the general election in May, with few major surprises but some interesting tweaking around the edges.
In a continuation of the changes to the pension system, the chancellor announced a reduction in the lifetime allowance from £1.25m to £1m. Investors with pension pots above this level will no longer be eligible for tax relief.
Another change to the pension system will be the ability from April 2016 for existing annuity holders to “assign their annuity to a third party in return for a lump sum”. According to the Budget report, this can either be taken directly or transferred to an “alternative retirement income product”.
The exact details of how this will work are still to be decided, but this could provide a further boost for income products of all types, including the spate of multi-asset income vehicles that have seen a surge in interest since the retirement freedoms were first announced in March 2014.
Elsewhere, income investors with a focus on social or impact investing will have the option to invest in what the Budget report calls “social venture capital trusts” (social VCTs).
These will benefit from income tax relief of 30 per cent, and investors will pay no tax on dividends received from a social VCT or capital gains tax on disposals of shares.
Further details on how these will work will appear “in a future Finance Bill”.
On the other side of the Atlantic, meanwhile, the Federal Reserve removed the word ‘patient’ from its monthly monetary policy statement, opening the door for an interest rate hike some time this year.
That said, the 12-strong Federal Open Market Committee anticipates it will be appropriate “to raise the target range for the federal funds rate when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term”.
This continued emphasis on the data aspect of the economy has pushed back expectations of a rate hike from June to September or October, with some commentators predicting there will be two interest rate rises by the end of the year.
With macroeconomic policy remaining on the cautious side as far as the US is concerned, and with Europe and Japan among those willing to pump more money into the system, it appears that income investors will continue to have to dig deep to find the best opportunities.
Nyree Stewart is features editor at Investment Adviser