By Daniel Hunter
Dr Ros Altmann, a savings and investment expert and former Government adviser, is calling on the Chancellor to put savers at the heart of his Autumn Statement (December 5th) - to help them now, and to encourage everyone to save for the future.
She has written to George Osborne urging him to do more to help savers and to offer better incentives to those saving for a house deposit, planning for retirement or later life care needs.
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.
"People with savings have often struggled to put that money aside and denied themselves things so that they can have financial independence," Dr Altmann said.
"It is important that we encourage people to save for their future, but if we continue to punish those who have done so, especially as they reach retirement, younger people will decide it is simply not worth it."
As director general of Saga, Ros Altmann is an influential advocate for Britain’s 21 million over-50s. However she says her suggestions would help all savers, of all ages, and all income levels.
"Young people saving to buy their first home are also suffering in the current economic climate," she went on.
"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."
Dr Altmann says 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.
Dr Altmann is 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.
A basic rate taxpayer with £10,000 in a savings account earning 3% interest receives £300 a year in interest. But they then lose £60 of that £300 in tax and are only left with £240 in income. If the rules were changed, the saver would keep all of the £300 interest. This would help them in the same way as an increase in interest rates, 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 £7,920 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. Saga has been inundated with letters and emails from distraught and angry pensioners who have saved hard and expected their pension savings to support their retirement lifestyle. Now, despite having plenty of money in their fund, the government's rules won't allow them to spend it. There is not even any allowance for those in poorer than average health.
Introduce personal savings schemes to fund later life care
We are heading towards a care crisis. With an aging 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.
“We urge the Government to introduce a new lifetime Care Savings Allowance to encourage tax free savings towards care up to £30,000. This can be used to pay for care for themselves or their relatives, so that families can save for each other’s care if they wish to. Even if care funding is radically reformed in the future, it is very likely that 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.”
Use money in pension schemes to invest to create jobs and boost growth
Local authority pension funds have £150 billion 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.
Dr Altmann says that 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 lending 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."
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