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Osborne's pension changes to push up house prices

Osborne's pension changes to push up house prices

George Osborne’s series of pension and savings reforms could end up costing £5bn and push house prices up, a report has found.

The report by the Office for Budget Responsibility found the net effect of the former Chancellor of the Exchequer’s reforms – including pension freedoms, the secondary annuity market, restrictions on tax relief and the Help to Buy: Isa, - would initially be positive.

By 2018-19 they were predicted to have a net positive effect of £2.3bn on the public finances but this would gradually tail off, turning negative in 2020-21 and reaching -£5bn by 2034-35.

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The report also predicted that the reforms – particularly the Lifetime Isa – would push house prices up and make pensions less attractive – particularly for higher earners.

It said: “In recent years, the government has made a number of significant changes to the tax treatment of private pensions and savings and introduced a variety of government top-ups on specific savings products.

“In doing so, it has generally shifted incentives in a way that makes pensions saving less attractive – particularly for higher earners – and non-pension savings more attractive – often in ways that can most readily be taken up by the same higher earners

“Measures that change the relative incentive to save, whether in savings or pensions, will also affect the attractiveness of other investments such as housing.

“If significant volumes of money were diverted from pensions to housing, then given the relatively fixed supply of housing it would be expected to feed through to higher prices.

“It is possible that the restrictions in the annual allowance and lifetime allowance might also have diverted funds into housing, with the same potential effects.”

The Lifetime Isa – or Lisa – was predicted to push house prices up by 0.3 per cent, more than the Help to Buy Isa because of its relative generosity.

One of Mr Osborne’s most expensive policies in the long-term, according to the report, would be the changes to Isa subscription limits.

Between 2009-10 and 2014-15 the Isa subscription limit went up from £7,200 to £15,000 and will reach £20,000 by 2017-18.

The report said: “The March 2014 measure raising the limit to £15,000 and permitting it to be used in its entirety for cash Isas was estimated to cost £1.3bn over the five years to 2018-19.

“Taking the limit up further to £20,000 […] was only expected to cost £30m over five years, given the smaller number of Isa savers that were expected to be already subscribing to the 2016-17 limit of £15,240 and have sufficient spare cash available to save even more into their Isa.”