The Autumn Statement

In Philip Hammond’s first Autumn Statement as Chancellor of the Exchequer, he pledged a new saving incentive, as is the usual order of things, to bolster the British public in the wake of Brexit and plummeting interest rates.

The new bond from NS&I promises an interest rate of around 2.2%, a rate in excess of the average 0.95% gleaned from cash ISAs as reported by Moneyfacts in August this year.  However, it is not without its own limitations. Investments are capped at £3,000 and someone who takes advantage of this maximum over 3 years would find they have earned interest of just over £200.

The Long and Short of It

This incentive for savers is not quite the lifeline that may have been hoped for but a definite ‘nice-to-have’ as keeping cash becomes increasingly unprofitable for some savers in the face of inflation. For short-term goals and aspirations, this is a seemingly sensible step but what about the important financial long-term?

There are two tasks which are a mainstay of every government’s economic agenda, one is ensuring the public’s ability to take their first step on the property ladder, and the second is creating solutions so that the nation are able to save adequately for retirement. Both present a titanic problem, not just in their size, but in their ability to create nothing less than a disaster if not managed properly.

The Size of the Problem

Our Tackling the Savings Gap research has shown that 32% of Britons believe that they would need between £16,000 and £32,000 per year to live comfortably in retirement. That would require savings of £8,888 per year, or £741 per month over the average working life of 45 years.

Taking in to account first time buyers, the average house price now stands at £217,888. With the average deposit reported at 17%, savers could be looking at the prospect of raising £37,000.

When faced with these kind of gargantuan numbers, and the average person only able to save a reported £146.33 per month, it wouldn’t be unreasonable to assume that, for those who have not yet purchased their first home, saving for a house deposit and also boosting their pension are two mutually exclusive concepts, if either at all for the more pressingly pinched..

A Suitable Solution?

However, the Lifetime ISA, due to be introduced in April next year, allows for savers to account for both of these points.  Our recent data study reports that two thirds of the younger quartile are still looking to the Lifetime ISA to offer them a meaningful investment option. Critics have commented it’s potential to just act as a replacement for help to buy, and not provide incentive for retirement saving however, our data shows that 58% of 25-34 year olds hoping to invest in their Lisa for retirement, not just limiting its use to their first home purchase. The Lisa builds on the popularity of ISAs, with official figures showing that on average savers contributed £6,064 to ISAs in 2014/15 compared to £2,840 for personal pensions.

We’ll be taking a closer look at this highly anticipated saving and investment strategy over the coming days and also taking in to account what 4,000 employees had to say, when we polled them on their thoughts about the Lifetime ISA.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

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