People aged under 40 will be able to open new ISA-type accounts to save for a new home or their retirement, under plans unveiled in the Conservative government’s latest Budget.
Chancellor George Osborne acknowledged young people face an “agonising choice” to either save for their first home or their retirement.
He announced the introduction of a Lifetime ISA for those under the age of 40 with an annual limit of £4000, where for every £4 an individual places in the fund the government will add a further £1 (up to a value of £32,000).
The government is currently assessing whether people could remove the money for a small fee and return it later, creating what Osborne described as a “flexible and fair” system.
Joanne Segars, chief executive of the Pensions and Lifetime Savings Association, described the announcement as an “interesting initiative” to help younger people add to their pension and lifetime savings. “An important part of this will be to make sure that savers’ interests are protected by ensuring that the regulation on charges and governance of the Lifetime ISA are comparable to those for pensions, which have been reviewed to make sure they offer savers good value," she said.
“The government has extended the way in which people will be able to save for their retirement and should use this opportunity to agree a new consensus for pensions that focuses on the long term, builds confidence, and gives both savers and employers clarity and stability. We call on the chancellor to create a new, independent, retirement savings commission to tackle that challenge."
However, Bob Scott, senior partner at financial consultancy LCP, wondered if the introduction could be a precursor to more wide-ranging pensions reform once the dust has settled on the EU referendum. “Perhaps [this will] lead to the scrapping of pensions tax relief in a year or two's time, which we understood George Osborne favoured," he suggested.
One of the big winners in the Budget were small businesses, thanks to Osborne’s announcement that the threshold for business rates would be doubled to £15,000. The chancellor estimated 600,000 firms would benefit from this scheme by being lifted out of tax altogether.
Mike Cherry, policy director at the Federation of Small Businesses (FSB), said that the chancellor had listened to calls for the tax system to be made simpler for small businesses and the self-employed.
“In particular, FSB members have campaigned hard to make Small Business Rates Relief permanent and expand it, and the chancellor has heeded our calls; taking many small firms out of the system altogether,” he said. “The combined measures announced on business rates – the single biggest tax cut in today’s Budget – will be viewed by our members as a welcome and important step on the road to fundamental reform.”