Sarah Coles, head of personal finance, Hargreaves Lansdown: “The Budget countdown has begun, with the date set for 26 November. It can be tempting to think of the Budget as something looming, to be feared for the potential it holds to make life more expensive. But it’s also a huge opportunity, to bring an end to speculation, support an investment culture and make a really positive change to people’s finances. There are seven things HL would like to see for savers and investors.
1. Continue supporting the building of an investment culture in the UK
Lots of people don’t get the help they need to start investing, but that’s about to change. Proposed new rules on how better to guide people to good financial decisions and outcomes without having to pay for advice will mean businesses can offer more targeted support and guide people to move long term savings into investment. The government needs to maintain momentum on this change, because it will be a game changer to help people build the confidence to invest for the longer term. Support in driving forward changes to risk warnings and a wider campaign to encourage retail investment are both really welcome steps to create a nation of investors.
2. Rule out changes to the cash ISA
Rumours around the future of cash ISAs, and possible changes to the overall ISA regime, have been swirling for the best part of a year now, which is somewhat unhelpful for savers planning for their future. Savings is the right home for money they may need to access in the next five years, so a cut to the allowance would simply see diligent savers being punished with tax bills on their savings. For money they don’t need until the longer term, investments are a sensible option, but tinkering with the cash ISA allowance won’t turn savers into investors. The work the government is doing to build an investment culture needs the opportunity to have an impact, instead of tinkering with needless and potentially damaging changes to ISAs. It would be good to see this speculation ruled out, bringing certainty for products that people need to be able to rely on.
3. Clarity on the tax-free lump sums people can take from pensions
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:“Speculation is rife about tax-free cash again, raising the risk that people are persuaded to take cash before it makes sense for their finances, leaving them in a worse position financially. Switching into cash savings and removing money from a tax-efficient environment could devastate the returns they need later in retirement. Tax-free cash is a hugely popular element of the pension system – easy to understand and something people rely upon for their retirement planning. Tinkering with it undermines incentives to save. There’s also the potential for really bad outcomes if people take their tax-free cash now thinking they can reinvest it back later if the rumours come to nothing. Doing this could mean you fall foul of pension recycling rules that could land you with a nasty tax charge. Labour said during the election campaign that the 25% tax free lump sum remains a permanent feature of the tax system. Reiterating this and keeping this promise would help allay fears and stop people needlessly eroding their long-term resilience.
4. Commitment to tax relief on pensions
There have been questions raised about the future of pensions tax relief, but any changes to this need to be considered alongside the Government’s policy intention to tackle low savings rates and pensions adequacy within the Pensions Review. Stand-alone piecemeal changes run the risk of unintended consequences. New figures from the HL Savings and Resilience Barometer show that higher earners face the biggest pension gaps in the UK - at £64,800 – compared to a gap of £1,250 among the lowest earners. Care needs to be taken over any changes which could potentially lead to an even bigger shortfall.
5. Ensure a sound future for the Lifetime ISA
More than 1.3 million LISAs have been opened, and they’ve been used to buy 182,500 homes. They have the potential to make a major difference to young people struggling to get onto the property ladder and to those putting money aside for the future but unsure about tying it up in a pension. After the Treasury Select Committee reported earlier this year, we want to see the government commit to its future. HL has also called for tweaks to the Lifetime ISAs that could make a real difference, especially to the retirement savings of self-employed people, who are often chronically under-prepared for later life, while having excess cash savings. The 25% penalty for accessing money for purposes other than buying a first home or for retirement not only removes the effect of the government bonus, it also applies a 6.25% penalty on people’s hard-earned savings. Cutting the penalty to 20% would encourage those who are hesitant to tie their money up because of variable earnings. In addition, if people could open a LISA up until the age of 55, analysis from the HL Savings and Resilience Barometer has shown this would help 70% of the self-employed who missed out on the LISA because they were too old when it launched.”
6. Resist the temptation to tax investments harder
Sarah Coles: “Recent governments have already hiked capital gains tax and cut the annual tax-free allowance, so more people are falling foul of the tax. Further changes would hit them yet again, and risk putting would-be investors off entirely. Meanwhile, income investors have already been hit with a succession of horrible cuts in the annual dividend allowance. More cuts would be at odds with the need to increase investment, especially in UK companies. The UK is already horribly underinvested. The tax system needs to be built to support investors and persuade cash hoarders of the benefits of investment – rather than punishing them and turning them away.
7. Commit to the consistency and reliability of tax rules
Changing the rules breeds uncertainty and can force people to rush into changes that aren’t right for them – or put off vital steps towards financial resilience. People need predictability and stability of the tax system to enable them to put money away today and plan for the long term. The government should prioritise the right incentives to support investing and saving and commit to them.”
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