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Budget or Fudge it?

I’m not intending to say too much about the content of this week’s budget because in recent years they have become political speeches, with a few financial announcements thrown in. And the odd laugh. George Osborne’s line that “I was going to keep pension lump sums and abolish the Liberal Democrats. Effective midnight tonight” did raise a bit of a titter.
But did you count the number of times he said that the budget was for the next generation and that if we didn’t act now we would have to pay later and that we choose to put the next generation first and that he wouldn’t let it happen on his watch and that we were doing it for the next generation.
And I loved the fact that he told us that Office for Budget Responsibility chooses to stay out of politics and then proceeded to tell us why the OBR though that we would be better off staying in Europe! Something which they later denied ever having said!
And I still haven’t worked out, given the lack of concrete figures in this year’s speech, how he’s going to turn a £20bn deficit in 2019 to a £10bn surplus on 2020?
But the one thing that did stand out for me this year from a personal finance perspective, and it is the continuation of a point that I made last year, is that we are witnessing the end of personal pensions as we know them. And at the end of the Budget this week the whole pension issue was even more fudged than it was on Wednesday morning.
The Chancellor said last year that he wanted to see pensions taxed in the same way as ISAs and he started to deliver on that promise this year. The new Lifetime ISA is a Trojan Horse that will see pensions replaced in the next five to ten years. ISAs, until this week’s Budget, didn‘t allow tax relief on the way in but the proceeds weren’t taxed when you took them out. The new Lifetime ISA effectively gives tax relief (although it’s called a bonus) at 20%, the same as the basic rate, on up to £4000 a year for anyone under 40. That’s a significant incentive.
But the most important issue for me is that it threatens to undermine the recently introduced auto-enrolment system that seems to be doing a pretty good job of encouraging those who have never had a pension to start to save. The numbers of employees opting out of their employer’s auto-enrolment schemes is much lower than most commentators thought and although overall contributions were probably too low, and many thought that the op-out shouldn’t exist and that the scheme should be compulsory, there is no doubt that it was working and was a good start for the millions of people who have no pension provision.
And that’s before we get started on the companies up and down the country that have spent thousands of pounds setting up these schemes and making sure that there internal payroll systems were robust enough to cope with the interactions that were necessary with pension providers software.
Oh, and one last thing before I end this one. The Chancellor said that he wanted to encourage young people to save for their retirement in these new ISAs, because remember that we’re choosing to do all of this for the next generation. But he also said that these young people could use the money they had saved as a deposit for a house. It can’t be both. It’s either for house purchase or it’s for retirement. You can’t use the same money twice.

2 Responses to Budget or Fudge it?

  • David Yule says:

    Fergus, not sure if the LISA undermines auto enrolment – looking at the figures employees would be bonkers to opt out of an auto enrolment scheme and take out a LISA.

  • Fergus Muirhead says:

    I know that and you know that David, but that’s not what the Chancellor hinted should happen when he spoke on Wednesday. and we both know that it’s not what his longer terms plans are.

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