Save money into your pension while you can
Hate me or love for what I am about to say but I must admit I have a grudging admiration for George Osborne, Chancellor of the Exchequer. Since 2010, Mr Osborne has steered the country on a difficult course back to recovery. Despite continued turmoil in Europe, he has been (largely) successful.
Hot and cold
Great Britain is rocking again although there remains a whiff of austerity in the air as July's Budget highlighted. Rocking but rolling, too.
Yet as far as savers are concerned, Osborne has blown hot and cold over the past five years and more.
In his early years at Number 11, it looked like he was happy to toss savers to the wolves as the base rate remained frozen at a rock-bottom 0.5%. Understandable, given the number one priority was to get the economy back on an even keel and address the country's horrible indebtedness.
Yet more recently, he has given savers – and investors – a little more to smile about.
Although the base rate has yet to move – it could well do before the year is out – he has given tax-friendly individual savings accounts (Isas) a fillip.
The result is that savers can now squirrel away meaningful amounts of money into these tax-free zones - £15,240 in the current tax year - and build a considerable war chest in the process.The plans are also far more flexible than ever before, allowing savers to switch freely from cash to shares or vice versa as their appetite for investment risk changes.
Together with the forthcoming introduction of a new personal savings allowance for all bar additional- rate taxpayers, exempting the first £1,000 of savings interest from tax (£500 for higher-rate taxpayers), things are looking up. And we mustn't forget the new £5,000 tax-free allowance for those in receipt of dividends which, like the personal savings allowance, kicks in from next April.
Murky future for pensions
Yet let's not get carried away. While the future for Isa savers under Osborne's wing looks rosy, the same cannot be said for those with pensions.
Like most chancellors before him, Osborne seems to have an aversion to pensions. It stems primarily from the expensive tax relief that pension savers enjoy on their contributions – relief that experts say currently costs the Treasury £50 billion a year. Indeed, over the past decade, the cumulative cost is not far short of £360 billion.
It explains why Osborne is desperately trying to keep a lid on pension costs. He's doing this by cutting the value of pensions (the so- called lifetime allowance) that people can build before swingeing taxes apply, from £1.25 million to £1 million.
And he's curtailed the ability of additional-rate taxpayers to fund their pensions by cutting their annual allowance. Both these measures will apply from April next year.
Some may say his actions are only fair because they impact on high earners who have always enjoyed the rub of the pensions green. I disagree, especially with regards to the reduction in the lifetime allowance, which penalises successful investment management and turns pensions into a financial planning nightmare.
Yet they only represent the tip of the iceberg. In the Budget, Osborne also announced a 'review' of pension contribution tax relief. Mark my words, 'review' is code for the beginning of the end of tax relief. Don't be surprised that by the time 2020 comes around, we will have seen yet another pensions revolution with tax relief axed on new contributions and pensions put on the same footing as Isas - contributions paid out of taxed income but tax-free on the way out.
Recommendations from government reviews can take a while to see the light of day. But given the lightning speed with which Osborne introduced the new pension freedom rules for the over 55s, don't be surprised if change comes sooner rather than later.
So my message to you is a simple one. If you can afford to, save into a pension like crazy while the government subsidises you for the privilege of doing so. Enjoy the good pension days while they last.
Jeff Prestridge is the personal finance editor of the Mail on Sunday. Email him at firstname.lastname@example.org
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.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.