Make sure you stop punishing savers and start valuing them please, George
Autumn Statement should help all savers – whether saving for house, planning for retirement or for later life care needs
Chancellor should harness savings to help growth and ensure young value saving
by Dr. Ros Altmann
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The Coalition Government has done nothing to help savers. There has been no recognition from the Chancellor of people who’ve done the right thing, put money aside, wanted to look after themselves and be independent. The Government either doesn’t recognise the damage that does, or doesn’t care. We would like this Autumn Statement to show that savers are valued. This is what every economy needs.
Whether they are saving for a house deposit, planning for retirement or for later life care needs, it is important to encourage people to save for their future. Continually pushing interest rates lower to help borrowers and banks has not generated economic growth, and taking money away from savers, or putting large disincentives in place to discourage saving is likely to damage growth.
If we continue to punish those who have saved, especially as they reach retirement, younger people will decide it is simply not worth it. People with savings often struggle to put that money aside and have to deny themselves things so that they can have financial independence. The time has come to acknowledge the value of savers, rather than continually making things worse for them.
As Director-General of Saga, and following mountains of letters and emails from savers saying how fed up they are with recent policies, I’ve written to George Osborne urging him to do more to help savers and to offer better incentives to those saving for the future.
As inflation has stayed high and interest rates have stayed low, savers are finding the money they have set aside is not delivering the income they need.
Savings is not just about older people. Youngsters saving to buy their first home are also suffering in the current economic climate and there are key changes which the Chancellor could make to help ease the problems faced by savers.
Change The Isa Rules
Current ISA rules only allow half the annual £11,280 allowance to be put into cash ISAs. The other half must go into stocks and shares.
I am urging the Chancellor to change the restrictions so that ISA investors can choose whether to put all their annual ISA allowance in cash, or in stocks and shares, or both, with free transfers between each.
ISAs are the best option for tax-free savings, outside a pension. However, it makes no sense to force savers to gamble on stocks, if they can’t afford to take losses. And they don’t even have to buy UK shares. Surely it’s much better to let people put their allowance in a cash ISA than buying foreign shares!
Higher cash ISA allowances would help savers in the same way as an increase in interest rates – it gives them more money from their savings – but without the same economic impact on other rates.
Change Income Drawdown Rules
Income drawdown is the facility to continue to keep your pension savings invested and take an income each year rather than giving all the money to an insurance company to buy an annuity.
In the past three years the Treasury and The Bank of England have introduced policy changes to income drawdown which have slashed the private pension income of many retired people by more than a third.
For example, the maximum annual income a 65-year-old man could draw from a £100,000 capped drawdown pension fund has fallen from £7920 in August 2009, to £5,300 in August this year and for a 65-year old woman has reduced from £7,440 to £4,900.
These moves have undermined confidence and trust in pensions. I have been inundated with letters and emails from distraught and angry pensioners who have saved hard and have been living on their pension income. They expected their pension savings to support their retirement lifestyle but suddenly, despite having plenty of money in their fund, the government’ has changed the rules and won’t allow them to spend it. There is not even any allowance for those in poorer than average health. The current restrictions must be relaxed to allow people to take more out of their pension fund – and trust them to be responsible.
Introduce Personal Savings Schemes To Fund Later Life Care
We are heading towards a care crisis. With an ageing population, it is essential that people save for care they may need in later life. The government needs to encourage people to address this issue, with incentives for them to save and invest so that they will be able to pay for adequate care.
The Chancellor could introduce a new lifetime Care Savings Allowance to encourage tax free savings towards care, perhaps up to £30,000. This can be used to pay for care for themselves or their relatives, at least for a year, so that families can save for each others’ care if they wish to, rather than desperately searching for money when someone suddenly needs expensive care. Even if care funding is radically reformed in the future, in a Dilnot-style solution, individuals will still have to fund a large portion of their care costs themselves so it is vital that we help people put money aside in case they need it. So far, most people have no idea they need to save for this and no money is being set aside either publicly or privately to pay for the looming costs.
Use Money In Pension Schemes To Invest To Create Jobs And Boost Growth
Local authority pension funds have £150billion of assets and significant sums are invested in gilts. Instead of buying government bonds, the Chancellor should encourage the money to be invested in infrastructure and construction projects which would directly stimulate growth. The economy needs money invested to boost recovery. Pension funds have money and need good returns to overcome deficits. Why not use this money to create jobs and growth and help improve pension funding. Local authority schemes are ultimately a taxpayer liability anyway and scheme deficits will reduce if the economy recovers.
Helping savers would also stimulate economic growth. Rather than continually giving more money to borrowers to help them afford their huge debts we need to focus on savers to help generate an economic recovery.
The Chancellor needs to do things directly to boost the economy; infrastructure projects, building new houses and even using people’s savings or pension funds to lend directly to small firms which are being staved of credit. Let’s make this an Autumn Statement for savers, young and old, and use the savings we’ve got in our economy to help growth.
NOTES FOR EDITORS:
Dr. Ros Altmann