Why the Autumn Statement was so disappointing for savers
Official forecasts in George Osborne's documents showed how Britons are saving less. Is it any wonder?
The Chancellor, George Osborne, has ignored pleas to compensate savers, even in some small part, for the damage caused by his policies.
Hopes had been high that the Autumn Statement would be used to extend a long-overdue olive branch to savers, to acknowledge the struggle faced by the millions who have responsibly tried to provide for themselves.
But several simple requests for improvements to Isas were ignored. Top of the list was to end the restriction that means only half of the £11,520 allowance can be used for cash savings. Savers, particularly older people who have accumulated a pot for retirement, should be allowed to switch that money from riskier stocks and shares Isas to safer cash Isa accounts if they choose.
The cost of improving Isas is relatively small amid the big figures of public finances. The cost of Isas in lost tax revenue is £1.75bn a year, compared with £21.5bn for tax relief on pensions, according to accountancy firm Grant Thornton. Mike Warburton, the firm’s tax director, said: “It’s hard to understand why they won’t make improvements to Isas. It would not be costly. Isas in any case are less generous than the Peps and Tessas that came before.
“If you were devising a savings product from scratch today that you wanted everyone to embrace, you would design it with as few restrictions as possible. That’s not what we’ve got here.”
While the Isa allowance has risen in line with inflation in recent years, our chart (above) shows how they will fail to encourage us to save more over the next few years, according to official projections.
This is despite the fact that some of the measures outlined by Mr Osborne served only to increase the urgency to encourage saving. Plans for raising the state pension age will be accelerated so that twentysomethings will claim their pension at 70 rather than 68. Most in their 40s will retire at 68 rather than 67.
The dream of early retirement will remain only for those who can save for themselves. Isas could provide the answer. Experts have long said they could be the key to solving Britain’s savings crisis. While pensions lock your money up (and have been tarnished by scandals over mis-selling and high charges), Isas are treasured as more flexible ways to save for retirement.
The Chancellor also disappointed by failing to extend the freedom of Junior Isas to six million savers trapped in child trust funds (CTFs). The Treasury has recognised that there is a problem and even held a consultation – but that process ended in August. It was hoped that CTFs could be transferred into Junior Isas, where better performing funds are available, often with lower charges, and where cash accounts pay better rates.
- Autumn Statement 2013: winners and losers
Some crumbs were offered to those in search of income. The Treasury will consider making it easier to hold “retail bonds” in an Isa. These bonds have flourished in popularity. In effect, individuals loan money to a company over a fixed period in exchange for an agreed amount of annual income. Tesco Bank, for instance, offered a bond that paid annual income of 5.2pc over seven years. But only bonds with more than five years to run can be put in an Isa. The vast majority of new bonds last longer than five years but they can also be traded on the London Stock Exchange. Those buying second-hand often do so with less than five years to run and could therefore benefit from this change.
It had also been widely hoped that peer-to-peer saving would receive a boost by being allowed in Isas. Peer-to-peer websites give individuals the chance to lend directly to others in return for income. There are risks but a senior Bank of England official recently predicted that the industry would one day replace high street banks, while the City regulator has offered it legitimacy by promising regulation of the sector from next year. The Treasury, it seems, remains reluctant to lend its support.
Anna Bowes, a director of SavingsChampion.co.uk, said: “Savers may not have been expecting too much from the Autumn Statement, but any hopes have been dashed all the same.”
Sam: 12th Dec 2013 16:44:00