Budget 2017: is another Isa on the cards?

Marina Gerner
7 March 2017
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On Wednesday (8 March) chancellor Philip Hammond is going to deliver the Spring Budget and as ever various experts have been making their predictions ahead of the event.

The Budget will be the last one to be announced at this time of year, with future statements being moved to the autumn.

Retirement experts predict that an Isa to address the looming social care crisis in the UK may be introduced in the forthcoming Budget.

Reports over the weekend suggested the chancellor would inject £1.3 billion into social care, which is increasingly under pressure as a consequence of local government budget cuts, and further exacerbates the NHS crisis.

 

Social care help

Former pension minister Ros Altmann told Money Observer she expects there to be something in the budget to help people save for social care.

She says: "I would love to see the chancellor announce a special savings incentive to help people understand the need to save for care costs in later life, as well as incentivising them to earmark some of their existing savings for that purpose."

She points out that many baby boomers have savings in Isas, but they have not set any of the money aside for a particular purpose.

"If the chancellor wants to signal the need for this, he could for example announce that an Isa that is specifically earmarked for care needs can be passed on free of inheritance tax (IHT) if not used for care - this would be up to a particular limit per person.

"This is not likely to have an upfront cost for the chancellor as Isas are already tax-free investments, but over time it may slightly reduce IHT receipts.

It will potentially save money to the NHS and care systems in future and will help families meet the costs of care that currently they have not budgeted for."

She also hopes there will be more encouragement to help people work longer.

"If we're going to be cutting immigration as a result of Brexit, which certainly is what the government has been talking about, then unless we encourage and help more older people to stay in work - then they, their children and the economy will suffer.

"Everybody's income will be lower. We need immigration to replace the workforce that is otherwise going to retire, let alone increase the workforce available for social care, which will be a growing area."

Pension tax relief

Steven Cameron and Kate Smith, pension experts at Aegon, argue that there is a growing awareness that social care is a pressing issue. They think the cap on social care costs might be brought forward in the forthcoming budget.

The government has previously announced that it plans to introduce a lifetime care cap of £72,000 on how much a person will have to pay more for their care. However, the cap which was originally scheduled for 2016 has since been delayed to 2020.

They also hope that no changes will be made to pension tax relief. "With Brexit coming along, there will be a period of uncertainty, and people will be concerned." According to Cameron and Smith it would be destabilising to the pension system to tinker with tax relief at this stage.

Jon Greer, pensions expert at Old Mutual Wealth, adds: "One thing he could do to simplify the complex pensions landscape is to scrap the annual allowance taper. Philip Hammond is in a position to backtrack on the annual allowance tax taper, since it could easily be chalked-up to an error of judgement by his predecessor George Osborne."

 

He argues it is a really complicated measure that makes it difficult for people to plan their savings. "It could lead to the unintended consequence of employers limiting pension contributions for staff to avoid any accidental breaches of the annual allowance," adds Greer.

This story was originally published for our sister magazine, Money Observer.

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