Today’s budget signified a commitment from the UK Government to innovation in savings. The savings gap in the UK currently stands at around £9 trillion1 something needed to be done to encourage individuals to save more.
We welcome the increase in the ISA allowance (from £15,240 to £20,000) as well as the introduction of a ‘Lifetime ISA’ for people under 40 (both effective 6th April 2017). The ‘Lifetime ISA’ should help to boost savings through ISAs – a positive development following a 14% fall in the number of savers opening ISAs over the last five years.
HMRC data shows that just under 2.2 million less ISAs were opened in 2014/15 than in 2010/11. This shows that more needs to be done to encourage savers to take advantage of the tax benefits available through ISAs. The ‘lifetime ISA’ offers an additional incentive.
In light of the flexibility of the ‘lifetime ISA’ the Chancellor has made the decision for the UK taxpayer to save less of a giant leap. Savers would be able to take money out ahead of time for a small cost (without the Government contribution) which is a huge help to those with changing circumstances, such as the self employed.
The fund management industry now needs to do its part to help – namely by lowering costs and improving accessibility to ISAs. Removing barriers to savings has been recognised as incredibly important and the industry has a duty to reflect this. Industry and Government need to work together to cultivate a stronger culture of saving in the UK.
Moneyfarm allows users to create an account in under 10 minutes and it provides complete transparency of the investment solution making it simpler to engage with your investments. This week’s Financial Advice Market Review (FAMR) highlighted the importance of innovative wealth solutions, calling on the industry to use technology to lower the costs of advice for UK consumers.
There are three key areas to take into consideration when looking to boost long term savings. This week’s announcements impact each of them:
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1. The size of investment pot – This year the ‘lifetime ISA’ means that for every £4 saved individuals would get £1 from the Government up to the value of £1,000 a year. This is fantastic news for savers, increasing the amount they have available to invest. Another boost to pot size is the increase in the personal allowance to £11,500 and moving the higher rate threshold to £45,000 (both effective 6th April 2017). This means that working people will have a greater disposable income which they can contribute to savings.
2. Returns – The increase in the ISA limit allows for greater tax free capital gains helping savers retain a higher proportion of their returns. Capital Gains Tax has also been cut by 8% for both basic and higher rate earners increasing the appeal of non-ISA investment accounts too (effective 6th April 2016). The government’s focus on increasing availability of low cost advice services in combination with these attractive tax changes should help investors to build wealth for the future.
3. Early engagement – The government has highlighted the importance of starting early when saving for the future. The introduction of the Lifetime ISA for under 40s, the generous tax tweaks and the FAMR’s focus on increasing affordability and accessibility of good quality financial advice all create an positive environment for investors to start building wealth earlier in their life.
Moneyfarm was built on the principles that high quality wealth management should be available to everyone at an affordable price and we feel today’s announcements are a step in the right direction.
1 Chartered Insurance Institute
*Please note: none of the above information is not intended as financial advice and is meant for informational purposes only. If you have any questions, please give us a call on 0800 433 4574