Budget 2016 will bolster Britain’s saving culture

The Chancellor has once again turbo-charged the savings industry with radical changes. The increase in the ISA allowance and the introduction of the Lifetime ISA are two in a long line of changes to savings that should bolster Britain’s savings culture.ISA allowance and the introduction of the Lifetime ISA are two in a long line of changes to savings that should bolster Britain’s savings culture.

The Lifetime ISA offers the perfect vehicle for generations to save – for those who want to help their children save for retirement or get onto the property ladder, there’s a product that people understand and trust. The ability to envelop existing ISA products can help those who are already saving, and will offer an incentive for those not doing so. This may, however, impact on the success of the Government’s auto-enrolment scheme – if younger savers have a more flexible savings option, there is a risk that many more will opt out of saving into a pension. This may benefit the Treasury, but could undermine confidence in the Government’s flagship pensions project.

Older savers should not feel hard done by being excluded from this new deal. The cut in capital gains tax – from 28% to 20% for higher-rate and additional-rate taxpayers and 18% to 10% for basic-rate taxpayers - along with a £5,000 tax-free allowance on dividend income and up to £1,000 tax-free savings interest can help them keep more of their money. Around 12 million over  50s own an ISA, and the £20,000 allowance will benefit them immensely.£5,000 tax-free allowance on dividend income and up to £1,000 tax-free savings interest can help them keep more of their money. Around 12 million over  50s own an ISA, and the £20,000 allowance will benefit them immensely.

For people to properly plan their retirement, and ensure they have enough money so as not to be a burden on the state, they need the confidence and reassurance that their pension plans won’t be wrecked by continuous change. The Chancellor has done the right thing by not taking the opportunity to raid the nation’s pension piggy bank and used the Budget to embolden people to save more for their retirement.

The ability for people to get early access to their savings to pay for advice, along with a firm commitment to a pensions dashboard is to be welcome. And the government has taken a sensible step by excluding pension contributions from salary sacrifice, as well as leaving the annual and lifetime allowances alone.

However, that doesn’t mean that further reform to tax relief on pensions in completely off the table. We’ll have to wait until after the Referendum to see if the Chancellor will act to reduce the high cost of providing tax relief.