As Philip Hammond strives to balance the books ahead of next month's Autumn Statement, the financial services industry is keen to offer advice.
Mail on Sunday columnist Jeff Prestridge highlights the plight of savers who, having been hit by seven and half years of low interest rates, are "now threatened by another ‘nasty' - the spectre of inflation".
"Although average wage inflation of 2.3% is buffering the household finances of those in work, experts believe this will not last," he elaborates. "Inflation is expected to catch up with wage growth early next year, leaving many workers facing real wage cuts and less cash in their pocket."
Prestridge proposes ‘a three-point cash savers' rescue plan’ which he believes the Chancellor should implement in the coming Statement. His proposal is that the government should:
- issue a new, inflation-linked savings plan from National Savings & Investments
- abolish tax on savings interest, and
- make it easier to transfer savings accounts.
As Prestridge says of the plan: "It's not radical, it would not be costly to put in place but it would make cash savers feel a little more loved than they currently are."
In the Financial Times Money section editor Claer Barrett argues the launch of the Lifetime ISA (LISA) "embodies all that is wrong with our current pensions system".
Barrett flags up three main criticisms: "the Lisa confuses two very different savings priorities (a home deposit and a pension); it could divert younger workers from contributing to a (potentially more valuable) company pension; and thirdly, the wealthy stand to reap the greatest rewards".
She adds, however: "All three of these accusations - confusing, off-putting for younger workers and geared towards the richest - can be levelled against the current pensions system too."
Still, one group who look set to benefit from the Lisa are the self-employed. Barrett points out: "Nearly five million people in Britain work for themselves - a 45% increase since 2000 - yet, according to the Resolution think tank, they are earning less in real terms now than they did 20 years ago. They also have no access to company pensions or auto-enrolment."
She concludes: "An added bonus of the Lisa is its flexibility - there's no need to pay in a fixed monthly amount - and it's portable. Pensions should be simpler, fairer and more flexible. Neither the current system, nor the Lisa, are the answer. But until the politicians can work it out, I'd grab your Lisa bonus while you can."
However, a note of caution concerning the Lisa has been voiced by Elliott Howarth at City A.M. He observes “When using the Lisa to contribute towards a first property, the terms of the Lisa specify that the maximum value of the home must be below £450,000. All very well, unless you happen to live in London, where average property prices are already over £500,000 and rising.”
Oxford Economics puts the London average house price at over £1m by 2030, meaning that unless the cap on property value is pegged to the London housing market, the Lisa alone will be as good as useless for purchasing an average house in the capital.
Adrian Lowcock, investment director at Architas, asks why the allowance needs a cap on the value of the property at all. “By trying to focus on those who really need the support, this cap makes the Lisa more complicated. It would be better to have no limit, which would be more supportive of saving generally,” he says.
“While that doesn’t mean the Lisa is of no use – you can still use it for retirement purposes – it does mean that you seriously need to consider alternative options at the same time,” says Lowcock. “The 25 per cent government bonus is not as attractive as the tax relief on pensions for higher rate taxpayers, for example. Company pension schemes where the employer matches contributions you make is also a more attractive way to save for retirement.”
Offering what is essentially free money may seem like an unpassable opportunity, and is certainly a stimulus to get a generation averse to saving to do so. But the Lisa in its current form won’t be a silver bullet for savers – especially for those aiming for the middle market and above, and especially those who want to stay in London.
With what might seem to some to be a poorly thought-through initiative, designed to promote savings, the Government have created an anomaly. Financial advisers will be warning clients that in London it is unlikely that the Lisa will be usable for house purchase, and can only be part of a retirement plan.