The introduction of a new Lifetime ISA in yesterday’s budget could have a knock-on effect on the number of young people saving into pensions, Saga has warned.
George Osborne yesterday announced the introduction of the Lifetime ISA – a new £4,000 ISA that will give savers a 25% government bonus for every pound they save.
The chancellor also increased the amount that individuals can save into ISAs from £15,240 to £20,000.
Gareth Shaw, head of consumer affairs at Saga Investment Services, said Mr Osborne had “turbo-charged the savings industry with radical changes”.
He said the Lifetime ISA in particular would offer an incentive for those who aren’t already saving to start doing so.
“This may, however, impact on the success of the government’s auto-enrolment scheme – if younger savers have a more flexible savings option, there is a risk that many more will opt out of saving into a pension,” said Mr Shaw.
“This may benefit the Treasury, but could undermine confidence in the government’s flagship pensions project.”
According to Mr Shaw, older savers shouldn’t feel hard done by as the cut in capital gains tax, a £5,000 tax-free allowance on dividend income and up to £1,000 tax-free savings interest will help them keep more of their money.
In its response to the budget, Citizens Advice said there are thousands of people struggling to balance the books.
“Household finances mirror the instability of the wider economy,” said the charity’s CEO Gillian Guy.
“Increasing the personal tax allowance threshold to £11,500 from April 2017 and helping households to save are both very positive steps.
”Ms Guy said getting effective financial guidance to people early is key to improving their finances.
“It’s crucial financial help isn’t just available at crisis points, people should be able to access it at key moments in their lives, like when they move jobs or have a baby.”
Ms Guy also criticised the changes being made to Personal Independence Payments (PIP), which are designed to help people cope with the extra cost of living with a disability.
“Disabled people who rely on PIP for help to get dressed or use the toilet will be worried about the impact this budget has on their ability to live an independent life,” said Ms Guy.
“People sought our help with 287,000 PIP issues in 2015 – making it the most common issue we give advice on.
“Many of the problems relate to how PIP is being implemented – included wrong decisions and double booking of medical assessments.
“It’s premature for the government to make such a fundamental change to PIP before it’s implemented properly.”