Sweet talking Chancellor of the Exchequer George Osborne hit the headlines this week when he managed to pull another rabbit out his annual Budget hat.
Do I, perchance, refer to the completely unexpected introduction of the Lifetime ISA? From Scottish Friendly’s point of view and the financial services industry in general, I do indeed.
Even before you could say “Jamie Oliver”, the headline writers had “Osborne slaps on sugar tax!” as the main news on Wednesday evening and of course in the next morning’s newspapers. In fact its announcement was the one moment the baying members of the House of Commons managed to hold their tongues during the Budget Speech!
Laudable as the sugar tax is to hopefully improving the health of nation’s youngsters, we at Scottish Friendly are, unsurprisingly, more interested about the concept of the Lifetime ISA. For us, this was the Chancellor’s most important “rabbit”.
Following a period of consultation, the Budget was predicted to alter the basis of pension saving with changes to tax relief, or possibly go even further with the introduction of a pension ISA.
However, not that long before Osborne delivered his speech, the media were briefed that, after all, there would be no changes to pension tax relief.
Although there were clues in the Treasury’s remarks that young people in particular were not saving enough, often because they feel they have to choose between saving for their first home and saving for retirement, the introduction of the Lifetime ISA (LISA) from April 2017 came as a surprise from the Chancellor whom many thought had little manoeuvre for any more surprises.
LISA targets those under 40 who will be able to save up to £4,000 a year into a tax-free ISA, and for every £4 deposited the government will add a further £1. This bonus will be available until savers are 50-years old. Osborne claims it is an original way for the next generation to save.
We at Scottish Friendly, while recognising LISA will not garner universal support, are enthusiastic about the initiative. It deals with one of the biggest problems society faces in the UK: trying to get under 40s to engage with planning for their retirement. The industry and government have mismanaged the “pension” brand for years with endless tinkering, mismanagement and “revolutions”.
The Lifetime ISA is sure to appeal to younger people and, depending on personal circumstances, its flexibility may prove more attractive than a pension. Let’s hope the new LISA takes off and really gets young people engaging in a savings habit for their future.