I hope that George Osborne will finally introduce some policies to help savers. It is vital that the Government stops punishing those who want to take responsibility for themselves and their future, rather than spending everything immediately and then falling back on benefits. Savers have had such a rough deal in recent years. It is understandable that some emergency economic help had to be introduced, but enough’s enough. Savers need some help now, in order to ensure that future generations are not put off taking responsibility for their own financial future.
Whether it’s young people saving for a house deposit, or older generations trying to prepare for retirement, savings have been damaged by recent policies. Ultra low interest rates have decimated savings income, high inflation has reduced savers’ capital spending power and the policy of Quantitative Easing which has bought huge swathes of the government bond market, has resulted in much lower pensions all round.
There are some major policies that I would love to see in this Autumn Statement.
1. Help all savers by relaxing the restrictions on ISAs (tax free Individual Savings Accounts) so the savers can choose to use their full annual limit either to save in cash or in stocks and shares. Currently, only half the annual allowance can be saved in cash. But young people saving for a house deposit or retirees living on their savings cannot afford to gamble on the stock market. They should be allowed to shelter the full annual allowance from tax. This would have the same effect for them as a rise in interest rates, as they would get more savings income.
2. Pensioners who do not want to buy annuities with their pension fund have had their incomes cut by Government policy when they are in an Income Drawdown pension. I am calling on the Chancellor to allow people to take more money out of their own pension savings, rather than cutting their pensions in line with the plunge in market annuity rates. The changes the Chancellor made last year have caused serious hardship for many pensioners, and reversing them would allow people to maintain their pension income, they would have more money to spend and pay more tax, so actually it would benefit the Exchequer. If they have been responsible enough to save large sums for their retirement, they should be trusted more to spend it appropriately.
3. I would like to see the Chancellor introduce policies to encourage people to save for later life care needs – at the moment, savings policy is focussing far too much on just pensions, without addressing the looming crisis in social care funding that is coming down the track. A separate ISA allowance for care savings, which would only be tax-free if the money is used for care – either for oneself or a member of ones family – would start to signal to people that later life saving is about more than just pensions.
4. I would like to see a more creative approach to encouraging pension funds to invest in local construction or infrastructure projects, or even lending to local businesses. Perhaps issuing some local bonds specifically for pension funds, with a minimum return underpin that would allow local authority pension schemes to help boost their local economies, or to invest more broadly to benefit the UK economy.
5. I would like to see some temporary tax breaks for capital spending projects, perhaps a 12 or 24 month special incentive that would encourage firms to undertake expansion investments quickly. Large firms have plenty of cash, but currently they are not feeling confident enough to use it. Giving them an incentive to do so, when we know they do have the money, could help kick-start growth and would pay for itself in reduced benefit spending. Pension funds also have billions of pounds of investments, but they are currently using their money to buy gilts to try to reduce their risks. This is a counterproductive strategy and the economy would benefit much more if they invested in projects that would provide a benefit to growth directly.
Ros Altmann is a UK pensions expert and campaigner
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