Yesterday’s Budget announcement was full of surprises – from the £3bn earmarked for Brexit preparations, to the instant abolition of stamp duty for 80 per cent of first time buyers.
But what does it mean for savers?
While most commentators praised the lack of pension reform and hands-off approach to tax-free ISA savings, there were a few bright spots for British savers.
1. Inflation has peaked
Chancellor Philip Hammond opened his Budget speech with some gloomy news – the Office for Budget Responsibility (OBR) has revised down its productivity and growth estimates for the UK economy over the next few years.
However, the same OBR report pointed out that inflation has peaked at its current rate of three per cent, and is set to start falling early next year. This will offer some relief to consumers, who have been hurt by rising food prices in a low interest-rate environment.
A fall in inflation means more money in the pockets of the average Brit.
Furthermore, the decision to freeze taxes on most alcohol products will mean that shopping baskets won’t be increasing too much in price in the run up to Christmas.
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2. No changes to pension taxation
Pension providers welcomed the lack of news about new taxation. In fact, the only pension-related Budget news was a pledge to provide pension funds with guidance on long term investments, a move which was welcomed by experts.
“This is a welcome announcement by the Chancellor and we await guidance by the Pensions Regulator,” said Liz Field, chief executive at the Personal Investment Management & Financial Advice Association (PIMFA).
“The increase in participation in private pension saving since the introduction of automatic enrolment has seen the beginnings of a shareholder revolution within the UK.
“Millions of savers now have a financial interest in organisations, property and various other asset classes that they previously had no exposure to. We support any moves which provide pension funds with clarity on new and innovative ways to grow their members’ money and believe steps that encourage investment in innovative firms will only help to encourage a sense of mutual ownership and engagement among UK consumers.”
3. Increase in lifetime pension allowance
As expected, the Chancellor opted to increase the personal pension allowance from its current £1m to £1.03m. The state pension is also set to by three per cent next year, in line with inflation.
“[The] Budget confirmed that the state pension will increase by three per cent next April from £ 159.55 to at least £164.37 giving pensioners an annual rise of £250,” said Kate Smith, head of pensions at Aegon.
“Fortunately, there was no U-turn in the lifetime allowance increase which has been confirmed to increase to £1.03m from next April.
“Following a series of reductions, this is good news for savers, even if on the surface the increase isn’t large. A small increase is welcome for those nearing the limit, but this is a complex area and people seek financial advice to avoid paying unnecessary tax.”
4. Increase in JISA limits
Junior ISA (JISA) products have consistently offered some of the highest interest rates on the market, making it easier for parents and grandparents to save for the future of their children and grandchildren.
Hammond confirmed that Junior ISA and Child Trust Funds are to be adjusted in line with inflation, rising to £4,260 from the current £4,128.
5. No change to ISAs
The annual ISA limit of £20,000 remains unchanged, so savers can continue to protect their money (and interest) from taxation by investing in cash ISAs, stocks and shares, and peer to peer platforms.
This continues to be the highest ISA limit in history, and it suggests that the government is reluctant to take any benefits away from savers, despite the ongoing low interest rate environment and economic forecast.