This is the view of Myron Jobson, personal finance campaigner for Interactive Investor, who said some of the decisions outlined by chancellor Rishi Sunak in the recent March Budget seemed "odd", especially if the government aims to get more younger people saving more.
FTAdviser In Focus caught up with Jobson to get his views on the Budget, on tax incentives and what younger people need from HM Treasury to help them become better savers.
FTAdviser: Did Interactive Investor notice any savings spikes immediately pre/post Budget?
Myron Jobson: Not particularly. Our customers tend to hold money in cash as part of their wider investment strategy. It might be the case that an investor is biding their time waiting for a buying opportunity.
It’s very difficult to draw quick conclusions, especially during the final weeks of the Isa season, when many people become more active with their portfolios.
While we can’t generalise about our customers, they tend to be buy and hold investors, focusing on long-term, ‘get rich slow’ wealth creation – but there will always be active and enthusiastic traders.
FTA: Do you think the tax measures outlined by Sunak will have a noticeable impact on savers?
MJ: The Budget did nothing to rejuvenate the savings market which has stagnated in the persisting low interest rate environment.
In fact, if the reduction in the National Savings & Investments financing target is anything to go by, the next financial year could spell more misery for saving rates.
The biggest news for savers was the launch of a ‘green’ retail savings product which will be closely linked to the UK’s sovereign green bond framework through the NS&I this summer. The burning question is what level yield will be offered at a time of rock-bottom savings rates?
The freeze does penalise younger savers looking to grow their wealth over time who had the foresight to start saving early.‘Cause-based’ savings products are few and far between, and more competition in this area is welcome. But an education campaign may be in order here to help understanding.
FTA: What could the freeze on personal allowances and the reinstatement of the Lifetime Isa penalty mean for younger savers in particular?
MJ: The chancellor decided to keep the Isa and personal savings allowances at their current rates of £20,000 and £1,000, respectively.
While savings accounts have swelled over the past year owing to lockdown savings on the cost of commuting, entertainment and holidays, the freezing of these personal allowances are likely to have no impact on the majority of young savers.
Those who are in a fortunate position to max out the Isa allowance still have a savings allowance of £1,000 before gains become subject to tax.
Longer term, though, the freeze does penalise younger savers looking to grow their wealth over time who had the foresight to start saving early.
The reduction in the Lifetime Isa withdrawal penalty from 25 per cent to 20 per cent was only meant to be a temporary measure to allow people experiencing financial difficulties during the pandemic to have to access their funds to help get them back on their feet.
While there’s still a penalty, the reduction effectively meant that only the government bonus was taken away – nothing more.
The penalty charge applied on Lisa savings contributions, as a deterrent to stop account holders from using funds for anything other than towards their first home or retirement, was always controversial.
The hope was the Government would maintain the reduced 20 per cent penalty charge, but that hasn’t transpired.
The decision seems a bit odd as the financial circumstances of those still reeling from the Covid pinch on their income won’t change overnight come the start of the new tax year.
FTA: Post-Covid, what would help younger people be able to save more?
MJ: The consumerist culture of today encourages people – young people in particular - to spend money on clothes, gadgets, holidays and cars instead of saving and investing.
The key is to find a happy medium: frugality, self-control, being prudent with your expenditure are underrated virtues.
In addition, education on the importance of savings and investing remains key – and this should start in the classrooms to help instill a savings culture from a young age. It’s so important because wealth gives you greater control of the lifestyle you want to lead.
There is a real need for financial education to empower people to make cogent decisions relating to their finances. I also think too many young people think investing is the preserve of the rich, but you can invest monthly from around £25.
FTA: Now we've Brexited (if that's now acceptable as a verb), are we likely to see a higher savings mentality as people seek to protect their own financial futures?
MJ: I’m not so sure. I don’t think being part of the European Union had any bearing on the UK’s savings culture. However, I do think that the pandemic has unwittingly sparked a renaissance of a savings culture in Britain.
While the dastardly pandemic has left many on the financial cliff edge, others have found themselves with more money in the bank, resulting from a dramatic dip in their expenditure on travel and outdoor entertainment because of strict lockdown restrictions.
Long-term savers should take care to not to keep more than they need in low interest accounts because it can be eroded by inflationWhen social-distancing restrictions are lifted, many might think twice before reverting to pre-coronavirus spending habits.
People should question whether they truly missed all aspects of their pre-Covid entertainment expenditure and consider whether some of that money could be put to better use – towards a rainy-day pot, deposit for a house, or extra investment.
FTA: What tax measures would help savers, in your opinion?
MJ: I think the current Isa and savings allowances are generous enough as is, although the Isa allowance has been frozen for a long time and that might start to have an impact down the line.
The uninitiated need an incentive to start savings actively and better educational tools, which help people see what a difference starting early can make, could be the biggest incentive of all.
The Financial Conduct Authority launched a consultation to reform the easy access cash savings market back at the start of 2020.
They were designed to improve competition in the market, encouraging firms to increase the interest rates they offer as well as protecting those consumers that currently receive the lowest interest rates.
But the work was stopped completely, with the continuing impact of coronavirus and the low-interest rate environment cited as the reasons.
In particular, the FCA said that “As interest rates for new products fall, so does the gap between rates paid to new and longstanding customers, and the size of the harm falls.” There are no easy answers here.
While the coronavirus crisis highlighted the importance of having cash savings for a rainy day, long-term savers should take care to not to keep more than they need in low interest accounts because it can be eroded by inflation.
Savers who can afford to keep their money locked up for at least five years could benefit from investing.
While the potential for greater returns from the stock market comes with inevitable risk, taking a long-term view means you can smooth out some of those highs and lows while benefiting from the long-term potential that comes with this approach.
