Chancellor discourages cash savings from 5 April 2005

As the scale of the nation's retirement savings shortfall is highlighted this week, accountants slam the Chancellor for further discouraging us from saving as he reduces the amount we can put aside in ISAs from next year.

The 'Pensions Challenges and Choices' report from former CBI head Adair Turner calls for a mix of higher taxes, more saving and a higher average retirement age to solve the UK's pensions crisis. However the Chancellor has already announced changes to the law in 2005 that will further discourage many from saving for the long term.

Accountants Blick Rothenberg have this week urged the Chancellor to think again about slashing the limit that individuals will be able to put aside in mini cash ISAs:

"Despite the increasing need for long term savings highlighted by the Adair Turner report on pensions, changes in the law already announced by the Chancellor will severely discourage new long term cash savings from 6 April 2005," said Steven Bruck, Partner in Chartered Accountants, Blick Rothenberg.

"Since 1997 it has been possible for individuals to save up to £3,000 per year in a mini cash ISA" which allows interest to be earned tax-free in a simple building society or bank account. From 6 April 2005 the limit is to be slashed by two-thirds to just £1,000 per year" said Bruck. "This a major blow to savings at a time when simple cash deposits represent an attractive alternative to discredited pension funds, where millions have lost so much money. Many people wishing to save for their pensions prefer the safety and accessibility of cash ISA's to complex pension fund arrangements.

"I really can't understand why the government is doing this at a time when savers have lost faith in so many financial institutions. A simple Building Society or Bank tax-free fund remains attractive to all savers. The drastic reduction in tax-free savings possibilities follows from legislation introduced a number of years ago. In his Budget in 2000 the Chancellor was proud to have delayed introduction of the new lower limits of £1,000 until April 2005, but this reduction now can be justified only as a means of raising tax revenues.

"It is to be hoped that the publicity following the Adair report will cause the Chancellor to think again. Now is surely the time to encourage, not discourage, savings. Also some consistency and stability would be helpful, rather than this chopping and changing."

 

13th October 2004

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