MAKE THIS AN AUTUMN STATEMENT FOR SAVERS
Savers have been punished as three years of record low interest rates, coupled with inflation, have whittled away the value of their income and capital
London, 30th November 2012: Dr Ros Altmann, a savings and investment expert and former Government adviser, is calling on the Chancellor to put savers at the heart of his Autumn Statement (December 5th) - to help them now, and to encourage everyone to save for the future.
She has written to George Osborne urging him to do more to help savers and to offer better incentives to those saving for a house deposit, planning for retirement or later life care needs.
As inflation has stayed high and interest rates have stayed low, savers are finding the money they have set aside is not delivering the income they need.
Dr Altmann said: "People with savings have often struggled to put that money aside and denied themselves things so that they can have financial independence. It is important that we encourage people to save for their future, but if we continue to punish those who have done so, especially as they reach retirement, younger people will decide it is simply not worth it."
As director general of Saga, Ros Altmann is an influential advocate for Britain’s 21 million over-50s. However she says her suggestions would help all savers, of all ages, and all income levels.
"Young people saving to buy their first home are also suffering in the current economic climate. The coalition Government has done nothing to help savers. There has been no recognition from the Chancellor of people who've done the right thing, put money aside, wanted to look after themselves and be independent. The Government either doesn't recognise the damage that does, or doesn't care. We would like this Autumn Statement to show that savers are valued. This is what every economy needs."
Dr Altmann says there are key changes which the Chancellor could make to help ease the problems faced by savers:
CHANGE THE ISA RULES
Current ISA rules only allow half the annual GBP £11,280 allowance to be put into cash ISAs. The other half must go into stocks and shares.
Dr Altmann is urging the Chancellor to change the restrictions so that ISA investors can choose whether to put all their annual ISA allowance in cash, or in stocks and shares, or both, with free transfers between each.
ISAs are the best option for tax-free savings, outside a pension. However, it makes no sense to force savers to gamble on stocks, if they can't afford to take losses.
A basic rate taxpayer with GBP £10,000 in a savings account earning 3% interest receives GBP £300 a year in interest. But they then lose GBP £60 of that GBP £300 in tax and are only left with GBP £240 in income. If the rules were changed, the saver would keep all of the GBP £300 interest. This would help them in the same way as an increase in interest rates, but without the same economic impact on other rates.
CHANGE INCOME DRAWDOWN RULES
Income drawdown is the facility to continue to keep your pension savings invested and take an income each year rather than giving all the money to an insurance company to buy an annuity.
In the past three years the Treasury and The Bank of England have introduced policy changes to income drawdown which have slashed the private pension income of many retired people by more than a third.
For example, the maximum annual income a 65-year-old man could draw from a GBP £100,000 capped drawdown pension fund has fallen from GBP £7,920 in August 2009, to GBP £5,300 in August this year and for a 65-year old woman has reduced from GBP £7,440 to GBP £4,900.
These moves have undermined confidence and trust in pensions. Saga has been inundated with letters and emails from distraught and angry pensioners who have saved hard and expected their pension savings to support their retirement lifestyle. Now, despite having plenty of money in their fund, the government's rules won't allow them to spend it. There is not even any allowance for those in poorer than average health.
INTRODUCE PERSONAL SAVINGS SCHEMES TO FUND LATER LIFE CARE
We are heading towards a care crisis. With an aging population, it is essential that people save for care they may need in later life. The government needs to encourage people to address this issue, with incentives for them to save and invest so that they will be able to pay for adequate care.
“We urge the Government to introduce a new lifetime Care Savings Allowance to encourage tax free savings towards care up to GBP £30,000. This can be used to pay for care for themselves or their relatives, so that families can save for each other’s care if they wish to. Even if care funding is radically reformed in the future, it is very likely that individuals will still have to fund a large portion of their care costs themselves so it is vital that we help people put money aside in case they need it.”
USE MONEY IN PENSION SCHEMES TO INVEST TO CREATE JOBS AND BOOST GROWTH
Local authority pension funds have GBP £150 billion of assets and significant sums are invested in gilts. Instead of buying government bonds, the Chancellor should encourage the money to be invested in infrastructure and construction projects which would directly stimulate growth. The economy needs money invested to boost recovery. Pension funds have money and need good returns to overcome deficits. Why not use this money to create jobs and growth and help improve pension funding? Local authority schemes are ultimately a taxpayer liability anyway and scheme deficits will reduce if the economy recovers.
Dr Altmann says that helping savers would also stimulate economic growth. Rather than continually giving more money to borrowers to help them afford their huge debts we need to focus on savers to help generate an economic recovery.
"The Chancellor needs to do things directly to boost the economy; infrastructure projects, building new houses and even lending directly to small firms which are being staved of credit. Let's make this an Autumn Statement for savers, young and old, and use the savings we've got in our economy to help growth."
Dr Ros Altmann is Director General of The Saga Group. She is an expert on pensions policy, investment banking, savings and retirement. She is an economist by training and an investment banker by profession, having extensive experience of all areas of pensions, from state pension policy to investment management of pension funds.
Her policy advisory work specialises in pensions and investment-related issues. She was a consultant to the UK Treasury on the Myners Review of Institutional Investment and has worked on pensions policy issues with the Number 10 Policy Unit.
In September this year, Dr Altmann launched a report by the respected economic think tank CEBR showing that fiscal and monetary policy will leave Britain’s pensioners GBP £11.5 billion out of pocket by April 2014, or an average of GBP £1,318 for each of the 8.7 million households. She pointed out that this will hamper economic growth as pensioners would be forced to cut back on goods and services. She said savers were paying the price of other people’s borrowing. Hammering pensioners’ incomes was sucking spending power out of the economy and reducing the power of the “grey pound” to create economic activity and jobs for younger people.
There are 12.85 million pensioners (8.7m households) made up of 4.15 million couples, 3.35 million single women and 1.2 million single men.
INTERVIEWS Dr Ros Altmann is available for live or pre-recorded interviews and has access to ISDN lines at home and in her office. She is also available for comment after the Autumn Statement has been delivered.
CASE STUDIES Case studies are available to comment on their personal circumstances in relation to savings and what they would like the Chancellor to include in his Autumn Statement. They are located in Anglesey, Ashford, Cambridge, Durham, Folkestone, London, Maidstone, Pembrokeshire, Plymouth, Southport and Winchester.
VIDEO CLIPS of Dr Ros Altmann and a Saver’s Case Study are available to be used, but their broadcast is embargoed until 00:01 Friday 30th November.
Dr Ros Altmann film: http://vimeo.com/m/54331981. Password: sagaaltmann2012.
Saver’s film: https://vimeo.com/54247455. Password: sagasavers2012.
They will also be on Saga’s YouTube channel from 00:01 on Friday 30th November. http://www.youtube.com/user/SagaGroup
CONTACT Sophia Dettmer, Southwick Media Consultancy.
Tel: 07803 800164. Email: firstname.lastname@example.org
DR ROS ALTMANN'S LETTER TO THE CHANCELLOR
The Rt Hon George Osborne
Chancellor of the Exchequer
1 Horse Guards Road
26 November 2012
As you prepare to deliver your Autumn Statement on December 5th, I would like to urge you to address the plight of Britain's savers. Those who put money aside for their future, or who are trying to do so now, have suffered so much in recent times due to policies aiming to stimulate growth. Three years of record low interest rates, coupled with inflation, have reduced savers' income and capital.
Both monetary and fiscal policies have made savers and pensioners worse off than before, which has actually weakened the economy as they have cut spending. This has also lowered tax revenues.
Savers are vital to any successful economy, and we need to urgently revitalise savings. We cannot do that if policy continues to punish them.
In the last Budget, there was no acknowledgement of the problems savers face. Indeed, since the Coalition came to power, their incomes have been squeezed sharply. It is not fair to keep taking money away from the savers, in order to bail out borrowers who took on too much debt.
Your previous Budgets have introduced policies which have particularly hit older savers, such as cuts in Savings Credit for Pension Credit claimants, reduced Income Drawdown limits, higher tax rates on Drawdown, removal of age-related tax allowances and reduced Winter Fuel Payments. The very poorest and very richest have been less affected, but middle income savers have been severely squeezed.
In fact, monetary policy has combined with fiscal policy to reduce pensioners' incomes even more.
Quantitative Easing has cut pensions and annuity rates, has damaged company pension funds and reduced income drawdown incomes. It has also increased inflation. This has made all savers worse off, as the value of their capital and income has been eroded.
If the Government continues to penalise those who have saved, younger people will decide it is not worth saving. Yet we could be harnessing the power of people's savings to stimulate growth, for example by using pension assets to invest in infrastructure, construction and even direct lending to smaller firms.
Politically, your policies towards savers are also very damaging, as these voters are fed up with finding that their diligence, hard work and thrift have been so poorly rewarded. They feel that this Government has taken them for granted and has constantly tried to take more money from them, without any acknowledgement of their responsible actions. Those who did not save, or those who borrowed irresponsibly have not been so badly impacted by your policies, nor have the very wealthiest.
Please consider a few key measures which would make a huge difference and start to undo some of the damage done by past policies:
* Remove restrictions on Cash ISAs: At the moment, anyone saving for a house deposit cannot use the full annual tax free ISA allowance. Neither can anyone in retirement that needs to live on their savings and cannot afford to gamble on the markets. Current rules are unnecessarily restrictive and only allow those who need to save in cash to use half the ISA allowance. The other half has to be in stocks and shares. These do not have to even be in UK companies, so it is hard to see why these restrictions are sensible. I hope you will use this Autumn Statement to allow ISA investors to choose whether to put all their annual ISA allowance in cash, or in stocks and shares, or both, with free transfers between each. It makes no sense to encourage savers to gamble on markets when they can't afford to take losses and, as interest rates are so low, having more of the income from their savings tax free is the equivalent of an increase in interest rates.
* Improve Income Drawdown: I urge you to change the income drawdown rules so that pensioners can take greater income from their own pension fund. I also urge you to ensure that the drawdown rules make allowances for those in ill health. Since 2011, the new rules you introduced, at the same time as the gilt-buying programme of Quantitative Easing policies, have meant that the Treasury and the Bank of England have slashed the private pension income of many retired people using capped income drawdown by more than a third. These moves have caused terrible hardship and have also undermined confidence and trust in pensions. Saga has been inundated with letters and emails from distraught and angry pensioners who have saved hard and expected their pension savings to support their retirement lifestyle. Now, despite having plenty of money in their fund, the Government will not allow them spend it. There is also no allowance for those who are in poor health and who have a shorter than normal life expectancy. This means those in income drawdown, who have chosen not to buy annuities, are receiving even lower pensions than if they had annuitised. If the drawdown regime was changed, to allow these people to spend more of their own money, you would also receive more tax revenue now.
* Encourage saving for later life care - perhaps care ISAs or Family Care Savings Plans. With an ageing population it is essential that people are encouraged to save for care they may need in later life. Why not take the opportunity in this Statement to encourage people to address this issue, with incentives for investments which will help pay for adequate care. For example a special ISA allowance for families to use to save up for care needs.
* Use pension assets to stimulate growth directly: Encourage local authority pension funds to invest in infrastructure and construction projects, which will provide jobs now and encourage lasting growth in the economy. These funds have GBP £150bn of assets - but large deficits and their trustees are under pressure to buy bonds, rather than investing in the economy to stimulate growth. Pension assets would be an ideal source of new investment funding for our economy. Rather than buying gilts, they should use these assets to ensure stronger growth. Buying gilts does not create growth, but directly investing in our economy using money set aside for the future could be much more effective.
Britain's middle classes have saved for their future, they must not continue to be punished for it. Just helping the very wealthy and the very poor is not a recipe for success - either economically or politically.
It is time to recognise the value of savers and ensure they receive better incentives as they plan for their future. They need to know that the Government values their efforts and sacrifices to be self-reliant and provide for their own future, rather than just living for today.
Dr Ros Altmann
Saga Group Ltd
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