Budget fails to tackle reckless non-savers
With the Budget being the only day of the year that people actually think about saving, the government should consider how to legislate for people who recklessly never really do so
By the time you read this George Osborne will have done his worst – or be about to – and most IFAs will be chewing over the detail, hoping not to choke on an unsavoury piece of tax gristle stirred into the mix.
Of course, these days much of his Budget is previewed in the pre-Budget report or leaked so there are not too many big surprises and as I am writing this before the Budget, many of the rumours or scares will by now have been scotched.
So what is the point of the Budget and why will it fail to tackle some of our most pressing personal finance problems? I should make it clear first that I am not against the principle of having an annual Budget and if, just once in the year, it focuses people’s attention on money and saving it has done its job and for that reason alone has a positive effect on consumers.
On the other hand, sadly, the Budget is probably the only day when many people actually do think seriously about planning financially, about tax planning and about saving for their futures. Yet again, the Budget comes as a slew of worthy reports and surveys suggest that while more people are putting money aside for a rainy day or saving for retirement, mostly because they are scared witless by the economic gloom, frankly what they put aside is peanuts. It is no surprise too, that too many are saving precisely diddly-squat for their pension.
Most IFAs will be chewing over the budget detail, hoping not to choke on an unsavoury piece of tax gristle stirred into the mix.
The Budget will not tackle people’s deep-rooted attitudes to money, nor their inability or unwillingness to save. Indeed even some of the threats rumoured for the Budget, like hacking away at higher rate tax relief on pensions, will do little more than raise a few eyebrows.
Of course, Mr Osborne cannot wave a magic wand and make people save more. He can incentivise saving through schemes like the Isa, which has probably done more to boost savings than anything else in recent years - and the increases in allowances have been welcome - but he could do a lot more to compel pension contributions by introducing an element of compulsory contribution.
This last point illustrates the fundamental flaw in the Coalition Government’s overall savings strategy. A good example is auto-enrolment which is coming along in the autumn. I do not quite agree with pensions guru Steve Bee, who was quoted recently in Financial Adviser warning that auto-enrolment would be an abject failure, but auto-enrolment will face an uphill struggle for acceptance and there will be so many “get out clauses”, caveats and loopholes it risks being undermined before it has started.
While auto-enrolment is better than nothing it remains far from a guaranteed success and I have long believed that only a compulsory pension contribution will work in the long term. Anyone who can pay into a pension should pay in. It should not be optional. It is not an additional tax - it is common sense. If auto-enrolment is a step towards that, great, if it is not it will be little more than a sticking plaster on a gaping wound.
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