Autumn statement 2013: Savers miss out
George Osborne’s statement provided little in the way of good news for savers, with a number of anticipated initiatives failing to make an appearance.
Many in the savings industry had expected the Chancellor to announce that the rules which prevent six million children transferring savings from child trust funds into junior ISAs would be scrapped, following the completion of a government consultation.
Danny Cox, head of financial planning at Hargreaves Lansdown, said: “The consultation ended in August and without a change in the rules to allow transfers from CTFs to Junior ISAs, over six million children with CTFs risk being disadvantaged. The Child Trust Fund (CTF) is in terminal decline with many providers offering lower rates and worse choice than is available from Junior ISA and the government needs to recognise this.”
Darius McDermott, managing director at Chelsea Financial Services, agreed: "I don't see why a child's date of birth should stop them getting the best deals. It seems incredibly unfair and the Chancellor has missed an opportunity to finally sort the mess out.”
He added: "The government asked for feedback, which they received back in August, and I don't really see why they couldn't make a decision in that time, especially when it's such a no-brainer: Junior ISAs offer more choice, lower costs and better cash rates. Let's hope they see sense before the March Budget."
There was also speculation that the government would allow peer to peer lending to be held within an ISA for the first time. Daniel Rajkumar, managing director of rebuildingsociety.com, said that this would have complemented the government’s current focus on business lending and encouraged “a new wave of P2P investors” and help create “a thriving SME sector in the UK”.
Contribution levels for ISAs and JISAs will rise, as anticipated, in line with the consumer prices index (CPI). In 2014/15 savers will be able to put £11,880 into an ISA of which £5,940 can be in cash ISAs. Allowances for junior ISAs and child trust funds will rise to £3,840.
Graham Beale, chief executive of the Nationwide Building Society, also said that he was disappointed that Osborne had not take the opportunity to equalize investment limits for cash and equity ISAs.
“This is a missed opportunity for the Chancellor to demonstrate support for savers by simplifying ISAs. The disparity between cash and equity ISA limits is a long standing anomaly that not only feels unfair for those who prefer to put their savings into a cash ISA, but also leads to widespread confusion around how savers can maximise their tax-efficient ISA allowance.”
The society is also calling for the government to permit transfers from equity ISAs into cash.
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.