Comments by David Harrison, Managing Partner, True Potential LLP
The Chancellor’s latest Budget that rewarded savers and pensioners was hailed by the media as a potential election winner for the Conservatives, and rightly so. The current Government has steered us through the worst financial crisis since the Great Depression and the green shoots of recovery are starting to show. As I write, there are reports that wage growth is higher than inflation for the first time since 2010, further evidence that the recovery is gathering pace.
But did the Budget go far enough to truly help savers when interest rates remain at record lows? And what next for savers and investors who are finally receiving attention from the Government?
The newly introduced NISAs will be a great improvement, offering savers a tax free and flexible way to invest more for their future. Simplifying ISAs and raising the annual allowance to £15,000 are two very welcome measures that are long overdue. I have argued for some time that ISAs can be made more attractive to help close the Savings Gap in Britain today and replace our culture of debt with a culture of saving. Earlier this year I raised this directly in Westminster and at the Treasury and I am pleased that our calls have been heard.
However, unless the rates on offer for cash ISAs from the banks do not improve significantly, simply saving more money in cash will still fail to generate good returns. The Budget announcement should be seen as a first step towards creating ISAs that represent viable alternatives to pensions. For this to be the case, I believe the limit should be set closer to £25,000 and savers should be encouraged to invest in stocks and shares ISAs.
Regarding pensions, our research shows that 25 per cent of people are saving nothing for their retirement. When I showed these figures to the Treasury I was clear that the current pensions system could not be the solution because it is part of the problem. Pensions have been far too complicated and unpredictable for too long compared with easy access to high cost credit.
The Chancellor’s decision to slash regulation and the administrative burdens that have spoiled pensions is good news. The life and annuities companies are unhappy, but if they had been putting clients first instead of their own shareholders, these changes may not have been necessary. There is a long way to go but I welcome the Chancellor’s efforts to simplify pensions and give greater freedom to savers.
The third announcement aimed at those preparing for retirement was the free advice that will be offered to pensioners. In principle, I support encouraging people to seek quality advice about savings and investments. However this announcement did come as a surprise not least because the introduction of the Retail Distribution Review last year did at a stroke discourage many savers from seeking advice.
With banks no longer offering advice and many advisers opting to advise only those clients with larger sums, we can all agree that there is now an advice gap in Britain. Whether this measure will help to close the gap will only become clear once we see the finer details.
All in all, the Budget was good news for savers and pensioners. But I firmly believe more can still be done now that a positive course has been set by the Chancellor. The journey has begun and I hope Mr Osborne continues his measures that reward those who are prudent with their money.