George Osborne’s suggestion in last year’s Budget that he could introduce a pension Isa met with such a brouhaha that we were told earlier this month he had backed away from any such plans.
But last week he went and did it anyway. Only he rather cleverly used the term Lifetime Isa. Nice one, George.
The Lifetime Isa looks a hugely attractive proposition to young basic-rate taxpayers as it rather niftily addresses the joint aims of saving to buy a home and investing for retirement.
The Lifetime Isa looks a hugely attractive proposition to young basic-rate taxpayersThe 25 per cent top-up, turning every £80 into £100, is the same as they would receive with a pension.
And investors will not pay tax on the way out if they take their money at age 60 or use it towards buying their first home up to £450,000.
This makes them look far more attractive than pensions.
But the sting in the tail is that those who access the money earlier will pay a 5 per cent charge and lose their top up bonus – as well as any growth or interest on the bonus.
The good news is that the Government is looking at allowing withdrawn money to be replaced and reinstating the bonus.
So is Mr Osborne taking a subtle knife to pensions?
There is no suggestion that employers would be allowed to contribute to a Lifetime Isa instead of a pension – well, not yet anyway.
They could prove a particularly attractive alternative to pensions for the self-employed who do not benefit from employer contributions.
As financial advisers, you will no doubt suggest that the £4,000 annual limit is not sufficient for pension saving. But it is far more than most people contribute, and that limit could be raised.
As could the maximum starting age limit of 40. In fact there are already hints of this, with the maximum contribution age to get the tax bonus already set at 50 and suggestions that investors would be allowed to contribute beyond this.
And as we have seen with Isas, the Chancellor is not afraid to make hefty increases to allowances.
All of which makes it feel rather as if this could be a tentative first step towards reforming the pension regime and knocking higher-rate tax relief on the head.
Even if that is not his intention, then this is still a radical reform of long-term savings aimed at the young and aspirational.
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This guy’s the limit on IFA fees
Also within the Budget was a throwaway comment on tax relief for financial advice.
Following on from the Financial Advice Market Review, income tax and National Insurance relief for employer-arranged financial advice will rise from £150 to £500.
Those aged up to 55 will be able to withdraw up to £500 tax free from a defined contribution pension to go towards the cost of financial advice.
Clearly the Chancellor or his advisers have little idea how much pension advice costs or they would have set a higher limit.
Nevertheless, he did accept the recommendations of this report, which was a creditable attempt to look at where financial advice stands today and to find a positive way forward.
Today, many people remain sceptical about advice and are concerned about its cost.
Yet they are having to make more decisions about their own money and long-term financial well-being, while avoiding the sharks.
Many financial advisers and investment firms would like to reach out and help but feel it is not cost-effective to do so.
So the report embraces robo-advice and emphasises that consumers must be empowered whether that is via the pensions dashboard or by ‘nudging’ them towards advice or action at certain stages.
The suggestion that the FCA should set up a dedicated team to help firms developing mass-market automated advice to help bring them to the market more quickly also hints at a change in approach.
Previously, firms seeking guidance from the FCA often complained that this could be hard to come by. Instead, the FCA adopted a “you do it – then we’ll decide whether or not to fine you for it” approach.
Yes, there are areas where I would take issue, but overall the positives far outweigh the negatives.
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No point saying mass for MAS
So it’s farewell to the Money Advice Service. The organisation spent rather a lot on salaries, thereby making certain that, while its clients might be debt-ridden, at least its directors avoided financial hardship.
It seemed to have little point in the first place aside from providing a temporary refuge for the great and the good – and I suspect few will mourn its passing.
Tony Hazell writes for the Daily Mail’s Money Mail section
